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World Economic Situationand Prospects 2013

asdfUnited Nations

New York, 2013



viii World Economic Situation and Prospects 2013

International reserves accumulation moderated

Te pace o reserve accumulation by developing countries and economies in transition

moderated somewhat in 2012, inuenced by weaker capital inows. Yet, the continued

accumulation o international reserve holdings is reective o continued concerns with

global economic uncertainties and a perceived need or “sel-insurance” against externalshocks. Te increased monetary reserves held in currencies o the major developed coun-

tries by ar outweigh capital inows and, as a result, developing countries and economies

in transition continue to make substantial net nancial transers to developed countries.

In 2012, these net outows amounted to an estimated $845 billion, down rom $1 trillion

in 2011. LDCs, however, received positive net transers o an estimated $17 billion in 2012

(gure O.4).

Ocial development assistance is alling

Net ODA ows rom member countries o the Development Assistance Committee o

the Organization or Economic Cooperation and Development (OECD) reached $133.5

billion in 2011, up rom $128.5 billion in 2010. In real terms, however, this represents a

all o 3 per cent, widening the delivery gap in meeting internationally agreed aid targets

to $167 billion. Preliminary results rom the OECD survey o donors’ orward spending

plans indicate that Country Programmable Aid (CPA)—a core subset o a id that includesprogrammes and projects that have predicted trends in total a id—is expected to increase

by about 6 per cent in 2012, mainly on account o expected increases in outows o

sot loans rom multilateral agencies that had beneted rom earlier und replenishments.

However, CPA is expected to stagnate rom 2013 to 2015, reecting the delayed impact o

the global economic crisis and scal policy responses on donor country aid budgets.

Figure 0.4

Continued net nancial transers rom developing to developed countries

-1000.0

-800.0

-600.0

-400.0

-200.0

0.0

200.0

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2 b

Developingcountries

Economies intransition

LDCs

Billions of US dollars

Source: UN/DESA.Note: Figures or 2012 are

partly estimated.



ixExecutive Summary

Uncertainties and risks

A worsening o the euro area crisis, the “scal clif” in the United States and

a hard landing in China could combine to cause a new global recession

Te baseline outlook is subject to major uncertainties and risks, mostly on the downside.

First, the economic crisis in the euro area could continue to worsen and be-come more disruptive. Te ongoing perilous dynamics between sovereign debt distressand banking sector ragility are deteriorating the balance sheets o both Governments and

commercial banks. Te scal austerity responses are exacerbating the economic downturn,inspiring sel-deeating eorts at scal consolidation and pushing up debt ratios, thereby triggering urther budget cuts. Te situation could worsen signicantly with delayed im-plementation o the Outright Monetary ransactions programme and other supports or

those members in need. Such delays could come as a result o political difculties in reach-ing agreement between the countries in need o assistance and the troika o EU, ECB andIMF, and/or much larger detrimental eects o the scal austerity programmes and moredifculties in structural adjustments than anticipated. In such a scenario, as simulated

through the United Nations World Economic Forecasting Model, the euro area couldsuer an additional cumulative output loss o more than 3 per cent during 2013-2015 andthe world as a whole o more than 1 per cent (see gure O.5).

Second, the United States could ail to avert the so-called scal cli. A political

gridlock preventing Congress rom reaching a new budget agreement would put automaticscal cuts in place, including a drop in government spending by about $98 billion andtax increases o $450 billion in 2013; taken over 2013-2015, the automatic scal austerity

would amount to about 4 per cent o GDP. In the scal cli scenario, world economicgrowth would be halved to 1.2 per cent in 2013 and by 2015 global output would be 2.5per cent lower than in the baseline projection. Te output loss or developing countries

would be about 1 per cent.

Figure 0.5

Impact o downside risks on world economy will be substantial

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

World UnitedStates of America

European Developingeconomies

Deeper euro cri si s

US fiscal cli ff

Hard landi ng in China

Union

Output loss in 2013-2015 (percentage deviation from baseline)

Source: UN/DESA, basedon simulations with WorldEconomic Forecasting Model.



xii World Economic Situation and Prospects 2013

Global nancial market instability needs to be attacked at its root causes

Global nancial market instability needs to be attacked where it originates. Tis challengeis twoold. First, greater synergy must be ound between monetary and scal stimulus.Continuation o expansionary monetary policies among developed countries will beneeded, but negative spillover eects into capital-ow and exchange-rate volatility must

be contained. Tis will require reaching agreement at the international level on themagnitude, speed and timing o QE policies within a broader ramework o targets toredress global imbalances. Te second part o the challenge is to accelerate regulatory reorms o the nancial sector at large, including shadow banking. Tis will be essentialin order to avoid the systemic risks and excessive risk-taking that have led to the low-growth trap and nancial ragility in developed countries and high capital ow volatility or developing countries.

Sucient resources need to be made available to developing countries

Sufcient resources must be available to developing countries, especially those possessing limited scal space and acing large development needs. Tese resources will be needed to

accelerate progress towards the achievement o the MDGs and or investments in sustain-able and resilient growth, especially or the LDCs. Fiscal austerity among donor countrieshas also aected aid budgets, as seen in the decline o ODA in real terms in 2011. Furtherdeclines are expected in the outlook. Apart rom delivering on existing aid commitments,donor countries should consider mechanisms to delink aid ows rom their business cyclesso as to prevent delivery shortalls in times o crisis when the need or development aid ismost urgent.

A scenario o concerted policies or more sustainable growthand jobs recovery is easible

A jobs creation and green growth-oriented agenda as outlined above is compatible with

medium-term reduction o public debt ratios and benign global rebalancing, according toa policy scenario analysis using the United Nations Global Policy Model. With continuedexisting policies, but assuming no major deepening o the euro crisis, growth o WGP

would average, at best, about 3 per cent per year, ar rom sufcient to deal with the jobscrisis or bring down public debt ratios. Te alternative scenario, based on the agenda outlined above, would support an acceleration o world economic growth to 4.5 per centper year between 2013 and 2017, while public debt-to-GDP ratios would stabilize andstart alling in 2016 or earlier. Employment levels in major developed countries wouldgradually increase and return to pre-crisis levels in absolute terms by 2014, and by 2017ater accounting or labour orce growth. Te employment recovery would thus comemuch sooner than in the baseline, although remaining protracted even with the suggestedinternationally concerted strategy or growth and jobs. An additional 33 million jobs per

year on average would be created in developing and transition economies between 2013and 2017.



xiv World Economic and Social Survey 2012

III International nance or development ......................................................................................... 67

Trends in private capital and other private ows...................................................................................................................... 67

Portolio ows and cross-border bank lending ..................................................................................................... 69

Foreign direct investment .................................................................................................................................................. 70

Remittances ................................................................................................................................................................................. 70

Shortening maturities ................................................................................................................................................................................ 71

Management o volatile cross-border capital ows ................................................................................................................ 72

International reserve accumulation and global imbalances ............................................................................................. 74

International nancial reorm ................................................................................................................................................................ 77

Progress in implementing Basel III................................................................................................................................. 80

Global systemically important nancial institutions .......................................................................................... 82

Reorms in compensation and incentives ................................................................................................................ 83

Global risks o shadow banking ...................................................................................................................................... 84

Progress in regulating shadow banking .................................................................................................................... 87

Other international nancial stability issues ................................................................................................................................ 88

Global nancial saety net................................................................................................................................................... 88

Multilateral and nancial sector surveillance ........................................................................................................ 89

International development cooperation and ocial ows ............................................................................................... 90

Ocial development assistance ..................................................................................................................................... 90

South-South cooperation ................................................................................................................................................... 94

Innovative sources o international nancing or development ................................................................ 95

Debt relie and sustainability ............................................................................................................................................ 98

Financing or long-term sustainable global development ............................................................................................... 98

IV Regional developments and outlook ............................................................................................ 101

Developed market economies ............................................................................................................................................................. 101

North America ................................................................................................................................................................................................ 101

United States: protracted and anaemic growth ................................................................................................... 101

Canada: economy losing momentum ........................................................................................................................ 104

Developed Asia and the Pacic .......................................................................................................................................................... 104

Japan: economy back in recession................................................................................................................................ 104

Australia: recovering rom the worst ooding in history ................................................................................. 106

New Zealand: earthquake reconstruction boosts growth ............................................................................ 107

Europe .................................................................................................................................................................................................................. 107

Western Europe: the debt crisis and its reverberations continue to depress the region ............ 107

The new EU members: “muddling through” continues .................................................................................... 111

Economies in transition ............................................................................................................................................................................ 113

South-Eastern Europe: countries ace another year o economic stagnation ................................... 113 The Commonwealth o Independent States: growth slows down .......................................................... 115

Developing economies............................................................................................................................................................................. 119

Arica: solid growth expected with a more avourable risk prole ............................................................ 120

East Asia: slowdown in China and recession in Europe weigh on regional growth....................... 125

South Asia: internal and external headwinds urther weaken economic activity .......................... 128

Western Asia: economic growth diverges between oil and non-oil economies ............................. 131

Latin America and the Caribbean: a modest acceleration in growth is expected .......................... 135



xvContents

Statisticals annex

Country classication ................................................................................................................................................................................. 143

Annex tables .................................................................................................................................................................................................... 153

Boxes

I. 1 Major assumptions or the baseline orecast ................................................................................................................................ 4

I. 2 Prospects or the least developed countries ................................................................................................................................ 6

I. 3 An internationally coordinated strategy or jobs and growth ........................................................................................... 33

II. 1 Global production chains, reight transport and climate change ................................................................................. 39

II. 2 Financial investment and physical commodity holdings ................................................................................................... 47

II. 3 International tourism .................................................................................................................................................................................. 58

II. 4 Import taris and South-South trade ................................................................................................................................................ 63

II. 5 Measuring trade in value added .......................................................................................................................................................... 65

III. 1 What is shadow banking? ....................................................................................................................................................................... 79

III. 2 Capital arbitrage since the crisis: trade nance securitization .......................................................................................... 82

III. 3 SDRs or development nance? ........................................................................................................................................................... 97

IV. 1 The economic eects o the Russian Federation’s accession to the World Trade Organization................... 115

IV. 2 New oil discoveries and the implications or growth in Arica .......................................................................................... 121

IV. 3 The economic impact o the Syrian crisis ...................................................................................................................................... 132

IV. 4 The eects o the global downturn on Latin American exports ...................................................................................... 138

Figures

0. 1 Weakening and highly uncertain outlook or the world economy ................................................................................ iii

0. 2 Jobs crisis continues in Europe and the United States and recovery will be protracted ................................ iv

0. 3 CO2 emissions rom transport and share o trade in world gross product move in tandem ....................... vii

0. 4 Continued net nancial transers rom developing to developed countries .......................................................... viii

0. 5 Impact o downside risks on world economy will be substantial ................................................................................... ix

I. 1 Growth o world gross product, 2006-2014 .................................................................................................................................. 3

I. 2 Growth o GDP per capita by level o development, 2000-2014 ..................................................................................... 3

I. 3a The vicious cycle o developed economies .................................................................................................................................. 7

I. 3b Feeble policy eorts to break the vicious cycle .......................................................................................................................... 7

I. 4 Post-recession employment recovery in the United States, euro area and

developed economies, 2007 (Q1)-2011 (Q2) and projections or 2012 (Q3)-2016 (Q4) .................................... 10

I. 5 World merchandise exports volume, January 2006-August 2012.................................................................................. 12

I. 6 Brent oil price, January 2000- October 2012 ................................................................................................................................. 14

I. 7 Daily grain prices, January 2007-October 2012 .......................................................................................................................... 14

I. 8 Non-oil commodity prices, 2000-2014 ............................................................................................................................................. 15I. 9 Net capital ows to emerging markets ............................................................................................................................................ 16

I. 10 Daily yield spreads on emerging market bonds, January 2007-October 2012 ...................................................... 17

I. 11 Exchange rates o major currencies vis-à-vis the United States dollar,

January 2002-October 2012 ................................................................................................................................................................... 18

I. 12 Exchange rates o selected developing country currencies vis-à-vis

the United States dollar, January 2002-October 2012 ........................................................................................................... 19



4 World Economic Situation and Prospects 2013

Major assumptions or the baseline orecast

The orecast presented in the text is based on estimates calculated using the United Nations WorldEconomic Forecasting Model (WEFM) and is inormed by country-specic economic outlooks pro-

vided by participants in Project LINK, a network o institutions and researchers supported by theDepartment o Economic and Social Aairs o the United Nations. The provisional individual countryorecasts submitted by country experts are adjusted based on harmonized global assumptions andthe imposition o global consistency rules (especially or trade ows, measured in both volume andvalue) set by the WEFM. The main global assumptions are discussed below and orm the core o thebaseline orecast—the scenario that is assigned the highest probability o occurrence. Alternativescenarios are presented in the sections on “Uncertainties and risks” and “Policy challenges”. Thosescenarios are normally assigned lower probability than the baseline orecast.

Monetary policy

The Federal Reserve o the United States (Fed) is assumed to keep the ederal unds interest rate atthe current low level o between 0.00 and 0.25 per cent until mid-2015. It is assumed that the Fedwill purchase agency mortgage-backed securities at a pace o $40 billion per month until the endo 2014, and will also continue its programme to extend the average maturity o its securities hold-ings through the end o 2012, as well as reinvest principal payments rom its holdings o agencydebt and agency mortgage-backed securities. The European Central Bank (ECB) is assumed to cutthe minimum bid and marginal lending acility rates by another 25 basis points, leaving the depositrate at 0 per cent. It is also assumed that the ECB will start to implement the announced new policyinitiative, Outright Monetary Transactions (OMT), to purchase the government bonds o Spain and aew selected members o the euro area. The Bank o Japan (BoJ) will keep the policy interest rate atthe current level (0.0-0.1 per cent) and implement the Asset Purchase Program, with a ceiling o ¥91trillion, as announced. With regard to major emerging economies, the People’s Bank o China (PBC) isexpected to reduce reserve requirement rates twice in 2013 and reduce interest rates one more timein the same period.

Fiscal policy

In the United States, it is assumed that the 2 per cent payroll tax cut and emergency unemployment

insurance benets are extended or 2013, to be phased out gradually over several years. It is alsoassumed that the automatic spending cuts now scheduled to begin in January 2013 will be delayed,giving more time or the new Congress and president to produce a package o spending cuts and taxincreases eective in 2014. The Bush tax cuts are assumed to be extended or 2013-2014. As a result,real ederal government spending on goods and services will all about 3.0 per cent in 2013 and 2014,ater a all o about 2.5 per cent in the previous two years.

In the euro area, scal policy is assumed to be ocused on reducing scal imbalances. The majority o countries remain subject to the Excessive Decit Procedure (EDP) under which theymust submit plans to bring their scal decits close to balance within a specied time rame. Typically,a minimum correction o 0.5 per cent per annum is expected, and the time rames range rom 2012 to2014. The time periods or achieving these targets will be extended in the most dicult cases. It is alsoassumed that in the event that tensions increase in sovereign debt markets, aected euro area countrieswill seek assistance rom the rescue und, thus activating the new OMT programme o the ECB. It isassumed that this will allow increases in bond yields to be contained and that the policy conditional-

ity attached to the use o OMT nance will not entail additional scal austerity; rather, Governmentsrequesting unds will be pressed to ully implement already announced scal consolidation measures.

In Japan, the newly ratied bill to increase the consumption tax rate rom its currentlevel o 5 per cent to 8 per cent by April 2014 and to 10 per cent by October 2015 will be implemented.Real government expenditure, including investment, is assumed to decline by a small proportion in2013-2014, mainly owing to phasing out o reconstruction spending.

In China, the Government is assumed to maintain a proactive scal policy stance, withan increase in public investment spending on inrastructure in 2013.

Box I.1



5Global economic outlook

policy initiatives were taken by the euro area authorities in 2012, including the Outright

Monetary ransactions (OM) programme and steps towards greater scal integration

and coordinated nancial supervision and regulation. Tese measures address some o

the deciencies in the original design o the Economic and Monetary Union (EMU).Signicant as they may be, however, these measures are still being counteracted by other

policy stances, scal austerity in particular, and are not sufcient to break economies

out o the vicious circle and restore output and employment growth in the short run(gure I.3b). In the baseline outlook or the euro area, GDP is expected to grow by only 0.3 per cent in 2013 and 1.4 per cent in 2014, a eeble recovery rom a decline o 0.5 per

cent in 2012. Because o the dynamics o the vicious circle, the risk or a much worse

scenario remains high. Economic growth in the new European Union (EU) membersalso decelerated during 2012, with some, including the Czech Republic, Hungary and

Slovenia, alling back into recession. Worsening external conditions are compounded by

scal austerity measures, aggravating short-term growth prospects. In the outlook, GDP

growth in these economies is expected to remain subdued at 2.0 per cent in 2013 and 2.9per cent in 2014, but risks are high or a much worse perormance i the situation in the

euro area deteriorates urther.

Te United States economy weakened notably during 2012, and growth pros-pects or 2013 and 2014 remain sluggish. On the up side, the beleaguered housing sector is

showing some nascent signs o recovery. Further support is expected rom the new round

o quantitative easing (QE) recently launched by the United States Federal Reserve (Fed)

whereby monetary authorities will continue to purchase mortgage-backed securities untilthe employment situation improves substantially. On the down side, the lingering uncer-

tainties about the scal stance continue to restrain growth o business investment. External

demand is also expected to remain weak. In the baseline outlook, gross domestic product

(GDP) growth in the United States is orecast to decelerate to 1.7 per cent in 2013 roman already anaemic pace o 2.1 per cent in 2012. Risks remain high or a much bleaker

scenario, emanating rom the “scal cli” which would entail a drop in aggregate demand

o as much as 4 per cent o GDP during 2013 and 2014 (see “Uncertainties and risks” sec-

tion). Adding to the already sombre scenario are anticipated spillover eects rom possibleintensication o the euro area crisis, a “hard landing” o the Chinese economy and greater

weakening o other major developing economies.

Economic growth in Japan in 2012 was up rom a year ago, mainly drivenby reconstruction works and recovery rom the earthquake-related disasters o 2011. Te

Government also took measures to stimulate private consumption. Exports aced strong

headwinds rom the slowdown in global demand and appreciation o the yen. In the outlook,

Growth in the United Stateswill slow, with signicant

downside risks

The need or scal

consolidation will reduce

growth in Japan

Exchange rates among major currencies

It is assumed that during the orecasting period o 2013-2014, the euro will uctuate about $1.28 pereuro. The Japanese yen is assumed to average about ¥80 per United States dollar, and the renminbi

will average CNY6.23 per United States dollar.

Oil prices

Oil prices (Brent) are assumed to average about $105 per barrel (pb) in 2013-2014, compared to$110 pb in 2012.

Box I.1 (cont’d)




Highunemployment

Fiscal austerity

& sovereign

debt risk

Low-growth

trap

Deleveraging

by rms &

households

Financial

sector

fragility

Figure I.3a

The vicious cycle o developed economies

Source: UN/DESA.

High

unemployment

Fiscal austerity

& sovereign

debt risk

Low-growth

trap

Deleveraging

by rms &

households

Financial

sector

fragility

Continued

EU austerity

Debt

dynamics

Fed

quantitative

easing

ECB

outright

monetary

transactions

Figure I.3b

Feeble policy eorts to break the vicious cycle

Source: UN/DESA.




in the region, such as Austria, Germany, Luxembourg and the Netherlands, register low unemployment rates o about 5 per cent. Unemployment rates in Central and Eastern Europealso edged up slightly in 2012, partly resulting rom scal austerity. Japan’s unemploymentrate retreated to below 5 per cent. In the United States, the unemployment rate stayed above8 per cent or the most part o 2012, but dropped to just below that level rom September

onwards. However, the labour participation rate is at a record low, while the shares o long-term unemployment reached historic highs o 40.6 per cent (jobless or 6 months or longer)and 31.4 per cent (one year or longer). Long-term unemployment is a lso severe in the EU and

Japan, where our o each ten o the unemployed have been without a job or more than oneyear. For the group o developed countries as a whole, the incidence o long-term unemploy-ment (over one year) stood at more than 35 per cent by July 2012, aecting about 17 million

workers. Such a prolonged duration o unemployment tends to have signicant, long-lasting detrimental impacts on both the individuals who have lost their jobs and on the economy as a

whole. Te skills o unemployed workers deteriorate commensurate with the duration o theirunemployment, most likely leading to lower earnings or those individuals who are eventually able to nd new jobs. At the aggregate level, the higher the proportion o workers trapped inprotracted unemployment, the greater the adverse impact on the productivity o the economy

in the medium to long run. Adequate job creation should be a key policy priority in developed economies.

I economic growth stays as anaemic in developed countries as projected in the base-line orecast, employment rates will not return to pre-crisis levels until ar beyond 2016(gure I.4).

Te employment situation varies signicantly across developing countries, but

the common challenges are to improve the quality o employment and reduce vulnerableemployment as well as conront structural unemployment issues such as high youth unem-ployment and gender disparities in employment—all o which are key social and economicconcerns in many developing countries.

Among developing countries, the unemployment rates in most economies in

The employment

situation varies across

developing countriesFigure I.4

Post-recession employment recovery in the United States, euro area anddeveloped economies, 2007 (Q1)-2011 (Q2) and projections or 2012 (Q3)-2016 (Q4)

Source: UN/DESA, based ondata rom ILO and IMF.

Note: The chart showspercentage changes o total

employment (as a movingaverage) with respect to pre-

recession peaks. Projections(dashed lines) are based

on estimates o the outputelasticity o employment(Okun’s law), ollowing a

similar methodology to thato ILO, World o Work Report

2011 (Geneva).

Percentage change

-6

-5

-4

-3

-2

-1

0

1

2 0

0 7 Q 1

2 0

0 7 Q 3

2 0

0 8 Q 1

2 0

0 8 Q 3

2 0

0 9 Q 1

2 0

0 9 Q 3

2 0

1 0 Q 1

2 0

1 0 Q 3

2 0

1 1 Q 1

2 0

1 1 Q 3

2 0

1 2 Q 1

2 0

1 2 Q 3

2 0

1 3 Q 1

2 0

1 3 Q 3

2 0

1 4 Q 1

2 0

1 4 Q 3

2 0

1 5 Q 1

2 0

1 5 Q 3

2 0

1 6 Q 1

2 0

1 6 Q 3

USAEuro area (16)Advanced economies (21)




East Asia and Latin America have a lready retreated to, or dropped below, levels seen prior

to the global nancial crisis. Te growth moderation in late 2011 and 2012 has so ar not

led to a discernible rise in the unemployment rate in these two regions—a positive sign,

with the caveat that a rise in the unemployment rate would usually lag in an economic

downturn. I the growth slowdown continues, the unemployment rate could be expected

to increase signicantly. In Arica, despite relatively strong GDP growth, the employmentsituation remains a major problem across the region, both in terms o the level o employ-

ment and the quality o jobs that are generated. Labour conicts also constitute a major

downside risk to the economic perormance o the region. Gender disparity in employ-

ment remains acute in Arica as well as in South Asia. Women are acing unemployment

rates at least double those o men in some Arican countries, and the emale labour orce

participation rate in India and Pakistan is much lower than that o males. Social unrest

in North Arica and West Asia has been caused in part by high unemployment, especially

among youth. Te related disruptions in economic activity, in turn, have urther pushed

up unemployment rates in some countries. Among economies in transition, the unemploy-

ment rate in the Russian Federation declined to a record low o 5.2 per cent in August

2012, partly as a result o increased public spending, but also because o a shrinking

active population. Notable job creation has also been recorded in Kazakhstan, but the

unemployment rate has increased in Ukraine as a result o tighter scal policy and weaker

external sector.

Ination receding worldwide, but still a concern in somedeveloping countries

Ination rates remain subdued in most developed economies. Continuing large output

gaps and downward pressure on wages in many countries are keeping inationary expecta-

tions low. Ination in the United States moderated over 2012, down to about 2 per cent

rom 3.1 per cent in 2011. A urther moderation in headline ination is expected in theoutlook or 2013. In the euro area, headline ination, as measured by the Harmonized

Index o Consumer Prices (HICP), continues to be above the central bank’s target o 2 per

cent. Core ination, which does not include price changes in volatile items such as energy,

ood, alcohol and tobacco, has been much lower at around 1.5 per cent, with no evidence

o upward pressures. In the outlook, ination is expected to drit down slowly. Ination

in the new EU members is also expected to lessen. Deation continues to prevail in Japan,

although the central bank has raised its ination target to boost ination expectations.

Ination receded in a majority o developing countries during 2012, but re-

mains stubbornly high in some. In the outlook, higher oil prices and some country-specic

supply-side constraints may continue to put upward pressure on ination in developing

countries in 2013 and into 2014. In Arica, while ination moderated in many economies,

the rate o ination is sti ll above 10 per cent in Angola, Nigeria and elsewhere. Ination is

expected to remain subdued in most o East Asia, but is still a concern or most countries

in South Asia where ination rates were, on average, over 11 per cent in 2012 and are

orecast to remain above or near 10 per cent in 2013 and 2014. Ination remains low in

most economies in West Asia, though it is still high (above 10 per cent) in Yemen and very

high (30 per cent) in the Syrian Arab Republic. Te ination rate in Latin America and

the Caribbean is expected to stay at about 6 per cent.

Ination remains subdued

in most developed

economies...

...and is receding in most

developing countries,

although still high in some




Outlook or global commodity and nancial markets

World trade slowed notably during 2012, along with weaker global output. Te sovereigndebt crisis and economic recession in the euro area and continued nancial deleverag-ing in most developed economies aected capital ows to emerging markets and other

developing countries, adding to uncertainty about economic prospects and enhancing market volatility. Tese actors, combined with spillover eects o expansionary monetary policies in developed economies, have also ueled volatility in primary commodity pricesand exchange rates. Global imbalances, characterized by large savings surpluses in someeconomies and decits in others, have narrowed markedly in the atermath o the global -nancial crisis. However, the rebalancing has hardly been a benign process, having resultedmainly rom demand deation and weaker trade ows.

Sharp slowdown o world trade

Ater plunging by more than 10 per cent in the Great Recession o 2009, world trade re-bounded strongly in 2010. Since 2011, the recovery o the volume o world exports has lost

momentum (gure I.5). Growth o world trade decelerated sharply during 2012, mainly owing to declining import demand in Europe, as the region entered into its second recessionin three years, and anaemic aggregate demand in the United States and Japan. Developing countries and economies in transition have seen demand or their exports weaken as a result.

Declining import demand

in Europe dampened world

trade growth in 2012

80

90

100

110

120

130

140

150

160

J a n

- 2 0 0 6

J u

l - 2 0 0 6

J a n

- 2 0 0 7

J u

l - 2 0 0 7

J a n

- 2 0 0 8

J u

l - 2 0 0 8

J a n

- 2 0 0 9

J u

l - 2 0 0 9

J a n

- 2 0 1 0

J u

l - 2 0 1 0

J a n

- 2 0 1 1

J u

l - 2 0 1 1

J a n

- 2 0 1 2

J u

l - 2 0 1 2

Index: January 2006 = 100

Emerging economies

World

Developed economies

Figure I.5

World merchandise exports volume, January 2006-August 2012

Source: CPB NetherlandsBureau or Economic

Policy Analysis, rebasedby UN/DESA.




year’s record crop. Te overall decrease reects a 5.5 per cent reduction in wheat, and a 2.5 percent decline in coarse grains, while the global rice crop is seen to grow by 0.7 per cent abovelast season’s record. Severe droughts and poor weather this year in the United States, theRussian Federation, Ukraine and Kazakhstan have been the main cause o the reduced maizeand wheat crops. According to the Food and Agricultural Organization (FAO), the decline

would also reduce the world cereal stock-to-use ratio rom 22.6 per cent in 2012 to 20.6per cent in 2013, which compares with the low o 19.2 per cent registered in 2007-2008.4 Te situation is not yet considered a threat to global ood security, however. In the outlook,ood prices will likely moderate somewhat with slowing global demand. However, given thatmarkets are very tight, even relatively minor supply shocks may easily cause new price spikes.

Sotening non-ood commodity prices

Te prices o non-oil, non-ood commodities started to decline in the second quarter o 2012 as a result o the slowdown in global demand (gure I.8). Te appreciation o theUnited States dollar has also contributed to the weakness in the prices o non-ood com-modities, as these prices are dollar-denominated. Prices o base metals and ores continued

their downward trend until mid-2012, beore rebounding somewhat towards the end o theyear, mainly inuenced by nancial actors (see chapter II). Global demand remained weak, while new mining projects implemented over the past decade have increased global supply.

4 Food and Agricultural Organization o the United Nations, “World cereal production in 2012

down 2.7 percent rom the 2011 record”, FAO Cereal Supply and Demand Brie, 8 November 2012,

available rom http://www.ao.org/worldoodsituation/ws-home/csdb/en/.

Metal and ore prices will

remain weak as a result o

subdued demand

50

100

150

200

250

300

350

400

2000 2002 2004 2006 2008 2010 2012 2014

All food

Agricultural raw materials

Minerals, ores and metals

Index: 2000 = 100

Source: UN/DESA.

Figure I.8

Non-oil commodity prices, 2000-2014




remain in the wake o political transormations and, in some cases, ongoing conicts,creating an adverse environment or stronger capital inows. Several Latin American coun-tries, such as Brazil, have introduced more rigorous capital account regulation to limitshort-term capital inows and mitigate capital-ow and exchange-rate volatility.

Te costs o external borrowing nancing increased or developing countries

and economies in transition when the crisis in the euro area escalated in mid-2012, buthave since decreased and remain low in general (gure I.10).

Net private capital inows to emerging markets are not expected to increase

by much on average in 2013, although volatility in markets would persist. New rounds o monetary easing announced by the central banks o developed countries are expected toprovide some stabilizing impact on nancial markets, which may help reduce risk aversionamong investors. In view o the interest rate and growth dierentials, investors are expectedto retain interests in developing countries. At the same time, however, the continued needor deleveraging the bank system in developed countries keeps the risk o capital reversalshigh or emerging markets. Furthermore, uncertainties surround uture growth prospectsor some large developing economies (see “Uncertainties and risks” section), which couldtemper appetite or oreign investments in emerging markets.

Volatile capital inows continue to be accompanied by large-scale capital out-ows rom emerging markets. Emerging market economies invested $1.3 trillion abroadin 2012, mostly associated with urther increases in oreign exchange reserve holdings.Even though the degree o reserve accumulation was slightly less than in 2011, it signalscontinued concerns in emerging and developing country economies regarding world com-modity and capital market volatility. While providing buers against shocks and policy space to mitigate exchange-rate volatility, the massive reserve accumulation is also urther

weakening global demand.6

6 See, or example, the discussion in World Economic and Social Survey 2010: Retooling Global

Development (United Nations publication, Sales No. E.10.II.C.1), chap V.

Capital inows continue to

be accompanied by large

scale capital outows rom

emerging markets

Source: JPMorgan Chase.

Figure I.10

Daily yield spreads on emerging market bonds, January 2007-October 2012

Index, January 2000 = 100

0

2

4

6

8

10

J a n - 2 0 0 7

J u l - 2 0 0 7

J a n - 2 0 0 8

J u l - 2 0 0 8

J a n - 2 0 0 9

J u l - 2 0 0 9

J a n - 2 0 1 0

J u l - 2 0 1 0

J a n - 2 0 1 1

J u l - 2 0 1 1

J a n - 2 0 1 2

J u l - 2 0 1 2

Percentage points

Africa

Asia

Latin America

Europe




Net ODA ows rom member countries o the Development AssistanceCommittee (DAC) o the Organization or Economic Cooperation and Development(OECD) reached $133.5 billion in 2011, up rom $128.5 billion in 2010. In real terms, how-ever, this represented a all o 3 per cent, widening the delivery gap in meeting internationally agreed aid targets to $167 billion.7 Preliminary results rom the OECD survey o donors’ or-

ward spending plans indicate that Country Programmable Aid (CPA)—a core subset o aidthat includes programmes and projects, which have predicted trends in total aid—is expectedto increase by about 6 per cent in 2012, mainly on account o expected increases in outowso sot loans rom multilateral agencies that had beneted rom earlier und replenishments.However, CPA is expected to stagnate rom 2013 to 2015, reecting the delayed impact o the global economic crisis on donor country scal budgets.

Continued exchange-rate volatility

A large depreciation o the euro vis-à-vis other major currencies was the dening trendin global oreign exchange markets or the rst hal o 2012 (gure I.11), driven by theescalation o the debt crisis in the euro area. Te euro rebounded somewhat in the second

hal o the year ater the European authorities announced some new initiatives, including the OM programme. Te exchange rates between major currencies remained relatively calm in response to announcements o the OM and urther QE by the European CentralBank (ECB) and the Fed. In the outlook, given announced monetary policies in majordeveloped economies and their generally weak growth prospects, it is difcult to ascerta ina clear trend in the exchange rates among the major currencies.

7 MDG Gap Task Force Report 2012 , op. cit.

Exchange rates between

major currencies remained

relatively calm in response

to QE measures

Source: UN/DESA, based ondata rom JPMorgan Chase.

Figure I.11

Exchange rates o major currencies vis-à-vis the United States dollar,January 2002-October 2012

Index, January 2000 = 100Index: 2 January 2002 = 100

50

100

150

200

250

J a n - 2 0 0 2

J u l - 2 0 0 2

J a n - 2 0 0 3

J u l - 2 0 0 3

J a n - 2 0 0 4

J u l - 2 0 0 4

J a n - 2 0 0 5

J u l - 2 0 0 5

J a n - 2 0 0 6

J u l - 2 0 0 6

J a n - 2 0 0 7

J u l - 2 0 0 7

J a n - 2 0 0 8

J u l - 2 0 0 8

J a n - 2 0 0 9

J u l - 2 0 0 9

J a n - 2 0 1 0

J u l - 2 0 1 0

J a n - 2 0 1 1

J u l - 2 0 1 1

J a n - 2 0 1 2

J u l - 2 0 1 2

Euro

Japanese yen

Swiss franc




Ater a precipitous all in late 2011, the rst hal o 2012 saw currencies in

most developing countries and the economies in transition depreciating urther against

the United States dollar (gure I.12). Tis trend was driven by two main actors: the

reduction in capital inows to these countries and the weaker growth prospects or these

economies. Since mid-2012, the exchange rates o most o these currencies have stabilized,

and some o them started to rebound ater the launches o the new QE in major developedcountries. In the outlook, continued implementation o the open-ended QE in major de-

veloped countries will likely increase the volatility in the exchange rates o the currencies

o developing countries and the economies in transition.

No benign global rebalancing

Global imbalances, which reers to the current-account imbalances across major econo-

mies, have narrowed signicantly in the atermath o the global crisis. Even i widening

slightly during 2012, they remain much smaller than in the years leading up to the crisis(gure I.13). Unortunately, this trend cannot be seen as a sign o greater global nancial

stability and more balanced growth. External imbalances have allen as a result o overall

weakness in global demand and the synchronized downturn in international trade rather

than through more structural shits in savings rates and demand patterns.

Te United States remained the largest decit economy, with an estimated

external decit o about $467 billion (3.1 per cent o GDP) in 2012, down substantially

External imbalances have

allen as a result o overall

weakness in global demand

Source: UN/DESA, based ondata rom JPMorgan Chase.

Figure I.12

Exchange rates o selected developing country currencies vis-à-visthe United States dollar, January 2002-October 2012

Index, January 2000 = 100Index: 2 January 2002 = 100

50

100

150

200

250

J a n - 2 0 0 2

J u l - 2 0 0 2

J a n - 2 0 0 3

J u l - 2 0 0 3

J a n - 2 0 0 4

J u l - 2 0 0 4

J a n - 2 0 0 5

J u l - 2 0 0 5

J a n - 2 0 0 6

J u l - 2 0 0 6

J a n - 2 0 0 7

J u l - 2 0 0 7

J a n - 2 0 0 8

J u l - 2 0 0 8

J a n - 2 0 0 9

J u l - 2 0 0 9

J a n - 2 0 1 0

J u l - 2 0 1 0

J a n - 2 0 1 1

J u l - 2 0 1 1

J a n - 2 0 1 2

J u l - 2 0 1 2

Brazilian real

Korean won

South African rand




rom the peak o $800 billion (6 per cent o GDP) registered in 2006. In mirror image, the

external surpluses in China, Germany, Japan and a group o uel-exporting countries have

narrowed, albeit to varying degrees. China recorded an estimated surplus o slightly over

2 per cent o GDP in 2012, a sharp decline rom a high o 10 per cent o GDP in 2007.

Japan is expected to register a surplus o 4 per cent o GDP in 2012, a lso a signicant

reduction rom its peak level o 5.0 per cent o GDP reached in 2007. While Germany’s

surplus declined only slightly, remaining above 5 per cent o GDP, the current account or

the euro area as a whole turned rom a decit into a surplus o 1 per cent o GDP. Large

surpluses relative to GDP are still present in oil-exporting countries, reaching 20 per cent

o GDP or more in some o those in Western Asia.

Te larger part o the adjustment reects demand deation in the global econ-

omy. In the United States, ollowing several years o rebounding exports, both export and

import demand weakened markedly in 2012. Te corresponding narrowing o the saving-

investment gap reects a small decline in the savings rate and signicant moderation in

investment demand. Te household saving rate, which increased rom about 2.0 per cent

o disposable household income beore the nancial crisis to about 5.0 per cent in the past

ew years, has started to all again to about 3.8 per cent. Te investment rate ell rom 19.2

per cent in 2007 to 16.4 per cent o GDP in 2012. Te government budget decit dropped

rom 10.1 per cent o GDP in 2011 to 8.7 per cent in 2012, mainly as a result o urther

cuts in government spending, not increased government revenue. In the outlook, a urthernarrowing o the current-account decit is expected in the United States in 2013 as a result

o weakness caused by similar adjustments.

In the surplus countries, the decline in the external surplus o China has

mainly been driven by a signicant drop in the growth o its exports caused by the weaker

global economy, rather than a strengthening o imports pushed by domestic rebalancing.

Both exports and imports in China decelerated substantially in 2012, even as China’s

The decline in the external

surplus o China was driven

by a drop in export growth

Source: IMF World EconomicOutlook database, October

2012 or historical data,and Project LINK or the

2012-2014 orecasts.

Figure I.13

Global imbalances, 1997-2014

Index, January 2000 = 100Current-account balances as a percentage of world gross product

-3

-2

-1

0

1

2

3

1997 1999 2001 2003 2005 2007 2009 2011 2013

USARest of the world

Oil exportersGermany and Japan

European Union less Germany

East Asia less ChinaChina




exchange-rate policy has become more exible. Te Government has stepped up meas-ures aiming to boost household consumption and rebalance the structure o the economy towards greater reliance on domestic demand, but thus ar this has not resulted in any visible increase in the share consumption in GDP. Te corresponding narrowing o thesaving-investment ratio in China came mainly rom a notable slowdown in the growth o

investment, rather than a reduction in saving brought on by increased consumption.In Japan, the narrowing o its external surplus has, to some extent, reectedthe strengthening o its domestic demand—including increased imports o oil related toreconstruction in the atermath o the devastating earthquake—but also a signicantslowdown in exports.

Te surpluses in oil-exporting countries are o quite a dierent nature as thesecountries will need to share the wealth generated by the endowment o oil with uture gen-erations through a continued accumulation o surpluses in the oreseeable uture. Yet, somestudies warn o a slowdown in oil exports or the Russian Federation in the medium run. 8

In the euro area, the current-account decits o member States in the periphery ell dramatically as a result o scal austerity and the severe contraction o private invest-ment and consumption demand. Smaller current-account decits were accompanied by

large nancial outows triggered by panic in the banking sector o debt-distressed coun-tries o the euro area. Tis reects a stark reversal o the European economic integrationprocess o past decades, when capital owed rom the core members to the peripheralmembers. In Germany, room remains or policies to stimulate more domestic demand soas to urther narrow its external surplus.

Global imbalances persist, inducing wide imbalances in net asset and liability positions. Te latest data show that the net external liability position o the United States

widened to a record $4 trillion (more than 25 per cent o GDP) in 2011, a signicantincrease rom $2.5 trillion in the previous year (gure I.14). Te oreign assets owned by theUnited States totalled about $21 trillion by the end o 2011, while assets in the United Statesowned by the rest o the world totalled about $25 trillion.9 Given the trends in global nan-cial markets in 2012 and the current-account decit trends discussed above, the net external

liability position o the United States is estimated to have increased urther during 2012.Given current trends, the global imbalances are not expected to widen by a

margin signicant enough in the coming two years as to become an imminent threat tothe stability o the global economy. However, the large net liability position o the UnitedStates poses a continued risk to the medium-term stability o exchange rates among majorcurrencies, as investors and monetary authorities holding large dollar-reserve holdingsmay ear a strong depreciation o the dollar over time and which would accelerate such a process in possible disorderly ashion. Should the global economy all into another reces-sion, the imbalances could narrow urther through demand deation. It would thus seem

8 See Ernst & Young, “The uture o Russian oil exploration: Beyond 2025”, available rom http://

www.ey.com/Publication/vwLUAssets/Perspectives-o-Oil-and-Gas-explorations-2011-EN/$FILE/

Perspectives-o-Oil-and-Gas-explorations-2011-EN.pd.9 The United States acquisitions o oreign assets increased by about $484 billion during the year,

but valuation adjustments lowered the value o oreign assets owned by the United States by $702

billion, mostly rom decreases in prices o oreign stocks. On the other hand, oreign acquisitions o

the assets in the United States increased by about $1 trillion, and valuation adjustments raised the

value o oreign-owned assets in the United States by $353 billion, mostly rom price increases o

the United States Treasury bonds. In short, the large increase in the net external liability position o

the United States during 2011 mainly reected a substantial change in the valuation o the assets

and liability, with net ows accounting or a smaller part.

Persistent global

imbalances have induced

wide imbalances in net

asset and liability positions




austerity responses are exacerbating the economic downturn, inspiring sel-deeating eorts

at scal consolidation and pushing up debt ratios, thereby triggering urther budget cuts.

As a result, the region has already allen into another recession three years ater

the global Great Recession o 2009, with unemployment rates rising to record highs sincethe debut o the euro. Te situation in Greece remains particularly dire, despite the act that

ears o an imminent exit rom the monetary union have eased and Greek government bondyields have subsequently retreated rom their peaks ollowing the debt restructuring in early

2012. GDP continues to plunge, however, even ater having already allen by nearly 20 per

cent since 2007. Unless the troika o the EU, the ECB and the IMF relax the terms o condi-tionality on the target and the time span o Greek scal adjustment, and also provide more

support, the economy will be unable to extricate itsel rom the present crisis any time soon.

Te ocus o attention shited towards Spain in mid-2012. Spain is the ourth

largest economy o the euro area, with a GDP twice the size o Greece, Ireland andPortugal combined. Te country’s borrowing costs surged when the Government asked

or international nancing to recapitalize the banks in early June 2012. Yields on 10-year

sovereign bonds peaked at 7.6 per cent in late July, surpassing the level Greece, Ireland

and Portugal aced when they were orced to ask or international assistance to address

debt distress. Financial market contagion spread to Italy, which also has seen signicantincreases in sovereign borrowing costs.

Tese developments posed heightened systemic risks or the monetary union.

In response, the ECB announced a new OM programme in September through which

it can make potentially unlimited purchases o sovereign bonds with a maturity o three

years or shorter issued by selected debt-distressed countries. Te OM programme aimsto reduce borrowing costs or these countries. However, the ECB can only purchase bonds

under the OM programme i countries have applied or international assistance via both

the European Financial Stability Facility (EFSF) and the European Stability Mechanism

(ESM), which comes with policy conditionality attached.

Ater the announcement, sovereign yields o Spain and a ew other countries

retreated substantially (gure I.15). In late September, Spanish authorities presented a budgetthat aims to cut the projected 2013 decit by €40 billion ($51.4 billion). Government spend-

ing is to be cut by 8.9 per cent, while public inrastructure spending is to drop rom 1.3

per cent to 0.89 per cent o GDP, among other austerity measures. A recent bank stress test

showed a capital shortall o €59.3 billion or Spanish banks. It will be easible to repair this with the €100 billion in European aid the Spanish Government has already requested or

recapitalization o its banks.

Te OM programme initiated by the ECB, i implemented as planned, po-

tentially could signicantly reduce debt renancing costs or Spain and debt-distressed

euro area countries. Uncertainties remain, however, on a number o issues unolding in theuture. For example, the agreement made earlier by euro area leaders to directly recapital-

ize Spanish banks without increasing the country’s sovereign debt was considered to be a

key initiative to eectively short-circuit the vicious eedback between sovereign debt andbank ragility. Subsequently, however, some euro area member countries have voiced a

somewhat dierent interpretation in that the direct bank recapitalization would work only or banks getting into trouble in the uture, not or those being rescued under the current

programme or Spain. I this interpretation would hold in practice, Spain’s government

decit would be much higher than originally projected and could trigger severe additional

scal adjustment.

The OMT programme

o the ECB could

signicantly reduce debt

renancing costs, but

uncertainties remain




Question remains as to whether Spain actually needs such deep budget cuts.In contrast with Greece, some analysts argue that Spain’s woes started in the private sector

as the housing bubble burst, drastically reducing government tax revenue and prompting

a rescue o banks. Beore that, the Government had relatively low debt levels and a modestdecit. From this perspective, scal austerity would not address the root cause o the prob-

lem in Spain, but only exacerbate the economic downturn and cause more unemployment.

In any case, even i the policy initiatives announced to date are implemented

as planned, they seem to be insufcient to break the downward spiral many euro area members ace in the short run and inadequate to boost a solid growth in the medium run.

Given all the uncertainties and risks, a number o researchers have already studied the sce-narios and economic ramications o the possible exit o some euro area members.10 Te

pessimistic scenario, discussed urther below, does not assume any break-up o the euro

area or the exit o any o its members, however. Te real implications o such an event areextremely difcult to gauge because o the large amount o nancial market uncertainty

that would arise and the complex, but as yet unknown, set o institutional rearrangements

that would result.Instead, the downside scenario presented below looks at possibility o a much

deeper recession in the euro area than delineated in the baseline. Te urther downturn

10 Global Insight estimates that an exit o Greece would come with substantial international spillovereects. It estimate s that the simulated output loss or the United States could be as much as 2.5 per

cent, pushing the economy into recession in 2013. (See IHS Global Insi ght, “US Executive Summary ”,

November 2012). Oxord Economics (“Central banks take out additional insurance”, Global Scenario

Service, September 2012) estimates that an exit o Greece in the third quarter o 2013 would lower

euro area GDP by 3.5 per cent and WGP would drop 1.3 per cent below the baseline or 2014.

In a uller euro area break-up with Greece, Portugal, Ireland, Spain, Italy, and Cyprus exiting in the

rst quarter o 2014, Oxord Economics estimates output losses could be as high as 10 per cent

and those or the world as a whole would also be commensurately higher.

The announced policy

initiatives seem to beinsufcient to break the

downward spiral

Figure I.15

Yields on two-year government bonds o selected euro area countries,January 2010-October 2012


0

4

8

12

16

20

24

28

32

J a n - 2 0 1 0

A p r - 2 0 1 0

J u l - 2 0 1 0

O c t - 2 0 1 0

J a n - 2 0 1 1

A p r - 2 0 1 1

J u l - 2 0 1 1

O c t - 2 0 1 1

J a n - 2 0 1 2

A p r - 2 0 1 2

J u l - 2 0 1 2

O c t - 2 0 1 2

0

20

40

60

80

100

120

140

160Germany

Ireland

Portugal

Spain

Greece (right-hand scale)

Percentage points




could be caused by a delayed implementation o the OM programme and other support

measures or those members in need. Delays could occur through political difculties

in reaching agreement between the countries in need o assistance and the troika o EU,

ECB and IMF, and/or much larger detrimental eects o the scal austerity programmes

and more difculties in structural adjustments than anticipated in the baseline orecast.11

Uncertainties about the “scal cli” in the United States

Unless Congress can reach an agreement to avert it, the United States will ace a sharp

change in its government spending and tax policy at the end o 2012. Because o the

potentially severe implications, it has been coined the “scal cli ”. Te tax cuts endorsed

during the Administration o George W. Bush worth $280 billion per year (oten reerred

to as the “Bush tax cuts”), the 2 percentage point payroll tax reduction worth $125 billion,

and the emergency unemployment compensation worth $40 billion introduced during

the rst term o the Obama Administration, were all designed to expire at the end o

2012. More specically, the expiration o the Bush tax cuts would imply an increase in

income tax rates across all income levels by about 5 percentage points in 2013. Among theother changes associated with the expiration o Bush tax cuts are the phasing out o the

reduction in the Federal Child ax Credit and an increase in the maximum tax rate or

long-term capital gains by about 5 percentage points. Te expiration o the 2-percentage-

point reduction in employee payroll taxes would imply a decline in aggregate disposable

income by about $125 billion. Moreover, the expiration o emergency unemployment

compensation, which was rst passed into law in 2008 and has been extended in the past

our years, would imply a reduction in consumption spending by about $40 billion.12 On

the expenditure side, automatic budget cuts will be activated, cutting expenditure by $98

billion.13 ogether these actions amount to a downward adjustment in aggregate demand

o no less than 4 per cent o GDP.

Te risk was sti ll clear and present in the immediate atermath o the November

6 presidential and congressional elections in the United States. In the worst case, politicalgridlock would prevent Congress rom reaching any agreement, leading to a ull-scale

drop in government spending by about $98 billion and substantial hikes in taxes amount-

ing to $450 billion in 2013. It is reasonable to assume that ater realizing the costs to the

economy, policymakers will eel compelled to reach an agreement on reinstating those tax

reduction measures and on ceasing the automatic spending cuts in the second hal o 2013.

11 More specically, the scenario o a deeper euro crisis presented in table I.2 below assumes urther

scal tightening in the debt-distressed countries and no use o the OMT programme. As a result,

bond yields and borrowing costs increase, while consumer and business condence drop urther,

aecting private consumption and investment demand.

12 For more details, see JPMorgan Chase Bank NA, “The US scal cli: an update and a downgrade”,Economic Research Note, 18 October 2012, available rom https://mm.jpmorgan.com/EmailPubS

ervlet?h=c7s2j110&doc=GPS-965096-0.pd; and Joseph Brusuelas, “Fiscal cli”, Bloomberg Brie,

25 September 2012, available rom http://www.bloombergbries.com/les/2012-9-25-Fiscal-Cli-

Special-Issue.pd.

13 These automatic cuts are specied in the Budget Control Act which was adopted as a result o the

ailure o the Joint Select Committee on Decit Reduction (the so-called “Supercommittee”) to

reach an agreement in 2011 as to how to bring the budget decit down to sustainable levels over

the next ten years.

The United States may

see major changes in

government spending

and tax policy at the

end o 2012




A hard landing o some large developing economies

Growth slowed noticeably during 2012 in a number o large developing economies, such asBrazil, China and India, which all enjoyed a long period o rapid growth prior to the globalnancial crisis and managed to recover quickly at a robust pace in 2010. For example, growthin Brazil dropped rom a peak o 7.5 per cent in 2010 to an estimated 1.3 per cent in 2012;in China, rom 10.4 per cent to 7.7 per cent; and in India, rom 8.9 per cent to 5.5 per cent.

Given the uncertainties about their external demand and various domesticgrowth challenges, risks o urther and larger-than-expected declines in the growth o these economies are not trivial. In this section, China is used as an example to illustratesuch risks and their implications or these economies and or the rest o the world.

China’s exports continued to slow during 2012, owing to weak demand inmajor developed economies. For 2012 as whole, real exports or China may register growtho about 5-6 per cent, compared to an average growth o about 20 per cent in the past 10years. Meanwhile, growth in investment, which contributed to more than 50 per cent o GDP growth in the past decades, has been decelerating. Growth in nominal xed invest-ment has declined rom 25 per cent a year ago to 20 per cent currently. As xed investment

accounts or almost 50 per cent o GDP, this deceleration alone will reduce GDP growthby 2.5 percentage points. Compared with 2009, when China’s exports dropped by morethan 10 per cent, it appears that the present deceleration in GDP growth comes mainly onaccount o domestic demand.

Te slowdown in investment growth in China has been driven primarily by two actors. First, the Government has adopted policies to control the risk o asset pricebubbles in the housing sector, including requirements or larger down payments and limitson the number o housing units people can buy. Real estate investment, which accountsor about 25 per cent o total xed investment, increased by 15 per cent in the rst hal o 2012, but the pace o growth was down rom 33 per cent recorded a year ago. Acquisitiono land or home construction has been declining at an annualized pace o about 20 percent since the beginning o 2012. Because this is a key source o revenue or local govern-

ments in China, their scal space has been heavily reduced. Slower real estate investmentgrowth also has considerable damaging eects on supplying industries.

Second, the central Government has become more cautious about scal stimu-lus. Most o the 2009-2010 large-scale scal stimulus package, costing about 4 trillion yuan,

was used or inrastructure investment and ormed an important driver o economic growthin those years. However, ater it was phased out in 2011, increasing concerns have beenexpressed in China over unintended side eects created by the stimulus and vast excessproduction capacity emerging in some industrial sectors. Te Government seems set to putmore eort into restructuring the economy, rather than trying to create more aggregate de-mand stimulus. Tis is based on the assumption that a rebalancing o the economy throughan increase in the share o household consumption in GDP could compensate or a declinein the investment rate and a slowdown in exports. It assumes that with such rebalancing

the economy could still grow at a robust pace o 7.5 per cent (which is the ofcial growthtarget or 2012). However, thus ar it has proven difcult to boost consumption in the shortrun and, moreover, industrial restructuring and uture GDP growth would require making substantial new investments today.

Furthermore, local governments have been acing nancing constraints in theimplementation o new projects. Fixed investment projects managed by local governmentsaccount or more than 90 per cent o total xed investment in value terms. Te nancing

China has seen a slowdown

in exports and investment




constraints have emerged because o less revenue rom land sales and lack o bank lending as the banks await positive signals rom the central Government.

Because o these actors, there are substantial risks or much lower GDP growthin China. Te downside scenario presented below assumes a slowdown in growth to about5 per cent per year, particularly i xed investment growth decelerates urther, subtracting

another 5-10 percentage points per year in 2013-2014. Other assumptions or this alterna-tive scenario or the Chinese economy include the central Government maintaining thetightening measures in the housing sector and no sca l stimulus.

Risk o a double-dip global recession

able I.2 summarizes the global economic consequences o the three scenarios discussedabove, based on simulations using the United Nations World Economic Forecasting

Model.Te euro crisis scenario ocuses on the relatively high risk o deeper scal cuts

in the debt-distressed countries. For reasons mentioned above, the much worse case, but,

or now, less likely scenario o a break-up o the monetary union is not considered here.

More specically, in this rst scenario, Greece, Italy, Portugal and Spain are expected totake urther austerity measures in 2013, with deeper cuts than assumed in the baseline. As a

result, the estimated output losses in these economies would be between 1 and 2 percentagepoints in 2013. Te deeper recession is assumed to spread to other economies through tradechannels and, more importantly, through greater nancial uncertainty as condence in the

euro and prospects or recovery erodes urther. As a result, the economy o the euro area would shrink by 0.9 per cent compared with the baseline orecast or 2013, thus urtherdeepening the euro area recession that set in throughout 2012. During 2013-2015, the cu-

mulative output loss or the euro area as a whole would amount to 3.3 per cent. Te urther weakening in the euro area would spill over to the rest o the world and the cumulative losso global output would amount to 1.1 percentage points. Te other developed economies,

such as the United States and Japan, would all suer notable losses. Te deepening o theeuro crisis would cost developing countries about 0.5 per cent o GDP on average.In the sca l cli scenario, world economic growth would slow to 1.2 per cent

in 2013, compared to 2.4 per cent in the baseline. Te cumulative output loss between2013 and 2015 would be 2.5 percentage points. Te United States economy would enterinto recession and Japan and the EU would also be severely aected, with output losses

o about 2 percentage points during 2013-2015. Mexico and Central America would behardest hit among developing countries, losing about 3.0 percentage points owing to closeeconomic ties with the United States. East Asian economies would see cumulative output

losses o about 1.6 percentage points. A hard landing o the Chinese economy, with GDP growth slowing to 5 per

cent in 2013, would also have a visible impact on the world economy. China accounts or

about 8 per cent o WGP and 10 per cent o world trade. Compared with the baselineorecast, a 3 percentage point deceleration in the pace o growth o the Chinese economy

would cause a cumulative global output loss o 1.5 percentage points during 2013-2015.

Given its close economic ties with China, Japan would be most aected, suer-ing a GDP loss o 1.6 percentage points. GDP o the United States and the EU would dropby 0.7 and 0.6 percentage points, respectively, over 2013-2015 compared with the baseline.

Much o their output losses would be caused by lower exports o capital goods to China.

In the downside scenario,

it is assumed that growth in

China would slow to about

5 per cent

A deepening o the euro

crisis would cause a loss o

global output o more than

9 per cent

The scal cli would have

an even larger impact

A hard landing o the

Chinese economy would

also have a visible impacton the world economy




Table I.2

Downside scenarios or the world economya

Percentage deviation from baseline GDP level

Output loss (-)

Deeper euro area

crisis

United States scal

clif

Hardlanding in

China

Three scenarios

combined

2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015

World -0.3 -0.7 -1.1 -1.2 -2.1 -2.5 -0.4 -1.0 -1.5 -2.2 -4.3 -5.9

Developed economies -0.4 -0.9 -1.5 -1.7 -2.7 -3.2 -0.1 -0.4 -0.8 -2.5 -4.7 -6.4

United States o America -0.1 -0.4 -0.8 -3.8 -5.2 -5.3 -0.1 -0.3 -0.7 -4.1 -6.3 -7.3

Japan -0.2 -0.4 -0.6 -0.6 -1.2 -2.1 -0.4 -0.9 -1.6 -1.7 -3.5 -5.8

European Union -0.7 -1.8 -2.7 -0.5 -1.2 -1.9 -0.1 -0.3 -0.6 -1.6 -4.1 -6.5

EU-15 -0.7 -1.8 -2.8 -0.5 -1.2 -2.0 -0.1 -0.3 -0.6 -1.6 -4.2 -6.7

New EU members -0.6 -1.1 -1.3 -0.2 -0.6 -1.1 -0.1 -0.3 -0.6 -1.4 -2.8 -3.7

Euro area -0.9 -2.1 -3.3 -0.5 -1.2 -1.8 -0.1 -0.3 -0.6 -1.7 -4.6 -7.3

Other European countries -0.4 -0.9 -1.2 -0.2 -0.8 -1.4 -0.1 -0.3 -0.7 -1.1 -2.8 -4.2Other developed economies -0.1 -0.2 -0.3 -0.6 -1.3 -1.7 -0.1 -0.3 -0.7 -0.8 -2.0 -3.0

Economies in transition -0.3 -0.5 -0.6 -0.2 -0.5 -0.7 -0.1 -0.3 -0.6 -0.9 -1.8 -2.4

South-Eastern Europe -0.5 -0.8 -0.9 -0.1 -0.4 -0.7 0.0 -0.2 -0.3 -1.1 -1.9 -2.4

Commonwealth o IndependentStates and Georgia -0.3 -0.5 -0.6 -0.2 -0.5 -0.8 -0.1 -0.4 -0.7 -0.9 -1.8 -2.4

Russian Federation -0.3 -0.5 -0.6 -0.2 -0.5 -0.8 -0.1 -0.4 -0.7 -0.8 -1.8 -2.4

Developing economies -0.2 -0.3 -0.5 -0.3 -0.9 -1.3 -1.1 -2.3 -3.0 -1.7 -3.7 -5.1

Arica -0.5 -0.5 -0.6 -0.6 -1.0 -1.0 -0.4 -0.8 -1.1 -1.8 -2.5 -2.9

North Arica -0.9 -0.8 -0.9 -0.9 -1.2 -1.1 -0.2 -0.4 -0.7 -2.7 -2.9 -3.1

Sub-Saharan Arica -0.3 -0.3 -0.4 -0.5 -0.9 -0.9 -0.5 -0.9 -1.3 -1.5 -2.3 -2.8

Nigeria -0.4 -0.5 -0.7 -1.1 -1.8 -1.7 -0.1 -0.4 -0.7 -1.8 -3.0 -3.5South Arica -0.3 -0.2 -0.3 -0.3 -0.5 -0.5 -1.1 -1.8 -2.3 -1.9 -2.6 -3.2

Others -0.3 -0.3 -0.4 -0.4 -0.7 -0.8 -0.2 -0.6 -0.9 -1.1 -1.8 -2.3

East and South Asia -0.1 -0.3 -0.5 -0.3 -0.9 -1.4 -1.6 -3.3 -4.2 -2.2 -4.8 -6.4

East Asia -0.2 -0.4 -0.6 -0.3 -1.0 -1.6 -2.0 -3.9 -4.9 -2.6 -5.6 -7.4

China -0.2 -0.4 -0.7 -0.4 -1.1 -1.8 -3.0 -5.7 -6.8 -3.7 -7.6 -9.6

South Asia -0.1 -0.2 -0.3 -0.1 -0.4 -0.5 -0.3 -0.8 -1.5 -0.6 -1.5 -2.5

India -0.1 -0.2 -0.2 -0.1 -0.4 -0.5 -0.1 -0.3 -0.5 -0.4 -0.9 -1.4

Western Asia -0.1 -0.2 -0.3 -0.2 -0.5 -0.7 -0.1 -0.3 -0.6 -0.6 -1.2 -1.9

Latin America and the Caribbean -0.2 -0.3 -0.4 -0.5 -1.2 -1.7 -0.4 -0.9 -1.5 -1.0 -2.5 -3.7

South America -0.1 -0.2 -0.3 -0.2 -0.6 -0.9 -0.4 -1.0 -1.6 -0.8 -2.0 -3.1

Brazil -0.1 -0.2 -0.3 -0.1 -0.4 -0.7 -0.4 -1.1 -1.7 -0.8 -1.9 -2.9Mexico and Central America -0.3 -0.4 -0.6 -1.0 -2.6 -3.2 -0.5 -0.9 -1.4 -1.4 -3.7 -5.2

Mexico -0.3 -0.4 -0.6 -1.0 -2.7 -3.4 -0.5 -1.0 -1.5 -1.4 -3.9 -5.5

Caribbean -0.1 -0.2 -0.4 -0.5 -1.2 -1.6 0.0 -0.1 -0.3 -0.7 -1.7 -2.5

Least developed countries -0.2 -0.3 -0.4 -0.3 -0.6 -0.8 -0.2 -0.5 -0.7 -0.8 -1.6 -2.1

Source: UN/DESA.

a See section on "Uncertainties and risks" or assumptions or these scenarios.




pensities. Te distributional impact o spending and revenue measures thus should be a concern to macroeconomic policymakers. In short, downside risks or developed countriesremain extremely high, because the present policy stances are, on balance, not supportiveo growth and job creation, and thus ail to denitively break out o the vicious circle.

Most developing countries and economies in transition have relatively stron-

ger scal positions. Some have opted to put scal consolidation on hold in the ace o global economic weakening. Fiscal decits may rise in most low-income countries thathave slowing government revenue rom commodity exports and the growing weight o ood and energy subsidies. Concerns are also mounting in developing countries about thepossible adverse eects o QE on the nancial and macroeconomic stability o their econo-

mies through increased volatility in international prices o commodities, capital ows andexchange rates. Such concerns underlie the urther accumulation o reserves and justiy maintaining capital controls. Facing a slowdown in growth and ination, central banksin many developing countries and economies in transition have eased monetary policy during 2012. In the outlook, urther monetary easing will be likely in many o thesecountries, except or those with persistently high ination, such as South Asia and Arica.

The need or more orceul and concerted actions

Given the looming uncertainties and downside risks discussed in the previous section, currentpolicy stances seem to all well short o what is needed to prevent the global economy romslipping into another recession. More orceul and concerted actions should be considered.

First, the policy uncertainties associated with the three key risks discussed inthe downward scenario need to be addressed immediately through shits in approach and

greater consideration o international spillover eects o national policies. In the euro area,the piecemeal approach to dealing with the debt crises o individual countries o the pasttwo years should be replaced by a more comprehensive and integrated approach, so as toaddress the systemic crisis o the monetary union and mitigate the key risks or the stabil-

ity o the global economy. While individual countries may still need to conront issues intheir domestic economic structures and institutions, crucial collective eorts are neededto close the institutional gaps and mend the pervasive deciencies o the EMU, including through laying solid oundations or scal and banking unions. Although important stepsin this direction are being taken or considered, the present state o aairs requires muchswiter and more orceul action. Only when concrete actions are taken that will restorecondence in the union can other more technical policy measures be put in place to deal

with such issues as how to resolve debt overhang and how to break the linkage betweensovereign risk and bank ragility. Policymakers in the United States should prevent a sud-den and severe contraction in scal policy—the so-called scal cli—and overcome thepolitical gridlock that was still present at the end o 2012. As holds or the EU, the globalramications o ailing to do so should be considered. It is only easible to work out the

current debt problems over the long run, and a scal consolidation plan will be credibleonly when rooted in an explicit strategy o economic growth and jobs creation. Te majordeveloping countries acing the risk o hard landings o their economies should engage instronger countercyclical policy stances aligned with measures to address structural prob-lems over the medium term. China, or instance, possesses ample policy space or a muchstronger push to rebalance its economy towards domestic demand, including throughincreased government spending on public services such as health care, education and

Policy uncertainties should

be addressed immediately

and a dierent approach

must be taken




social security—all o which will help lower precautionary household savings and increaseconsumption, thus reducing dependence on external demand.

Second, more specically, scal policy should become more countercyclical,more supportive o jobs creation and more equitable. Te present ocus on scal consoli-dation in the short run, especially among developed countries, has proven to be counter-

productive and to cause more protracted debt adjustment. Te ocus needs to shit in a number o dierent directions:• As a starting point, a rst priority o scal adjustment should be to provide

more direct support to output and employment growth by boosting aggre-gate demand and, at the same time, spread out plans or achieving scal sus-tainability over the medium-to-long term. Introducing cyclically adjusted orstructural budget targets will al low or keeping a countercyclical stance whileaiming or scal sustainability over the medium term.

• Fiscal multipliers tend to be more orceul during a downturn, but can bestrengthened urther by shiting budget priorities to growth-enhancing spend-ing, undoing cuts in public investment and expanding subsidies on hiring (which may be targeted towards new labour entrants and the long unemployed)

as well as enhancing public work programmes and employment schemes. Onthe tax side, reducing taxes on labour and changing tax codes to reduce labourincome tax wedges or youth, women, and older workers are options that pro-vide short-term boosts to employment as well as labour supply.

• Te distributional consequences o scal policies should be duly considered,not only or equity reasons, but also because o their implications or growthand employment generation. As indicated, rising inequality tends to have a dampening eect on aggregate demand and hence on economic growth.Shiting spending priorities to enhance employment eects will help avoidsuch an outcome, as much as would maintaining an adequate degree o pro-gressivity in taxation and access to social benets. Many middle- and low-

income countries may wish to reconsider across-the-board subsidies on oodand uel; these tend to come with a heavy scal cost, while the benets may accrue most to higher-income groups. Better targeting would provide moreeective income protection to the poor at potentially much lower scal cost.

• Economic recovery can be strengthened in the short and longer run by pro-moting green growth through scal incentives and investments in inrastruc-ture and new technologies. Lessons can be learned rom several developing countries, such as the Republic o Korea, which have successully providedeconomic stimulus through green inrastructure investment and energy-saving incentives. Tis has been ound to generate strong employment eects, suggest-ing that investing in green growth can be a win-win solution. Moreover, thesemeasures are imperative to substantially accelerating reductions in greenhouse

gas emissions—an essential step in combating climate change. Developing countries also stand to gain, provided they obtain technological and nancialsupport to adopt the still higher-cost clean energy technologies without jeop-ardizing economic development prospects.

Tird, global nancial market instability needs to be attacked at its roots. Tischallenge is twoold. First, greater synergy must be ound between monetary and scalstimulus. Continuation o expansionary monetary policies among developed countries

Fiscal policy should become

more countercyclical, more

supportive o jobs creation

and more equitable

Global nancial market

instability needs to be

attacked at its root causes




will be needed, but negative spillover eects into capita l-ow and exchange-rate volatility must be contained. Tis wil l require reaching agreement at the international level on themagnitude, speed and timing o QE policies within a broader ramework o targets toredress the global imbalances. Te second part o the challenge is to accelerate regula-tory reorms o the nancial sector. Tis will be essential in order to avoid the systemic

risks and excessive risk-taking that have led to the low-growth trap and nancial ragility in developed countries and high capital ow volatility or developing countries. Stepshave been proposed in some national jurisdictions, but implementation is lagging be-hind. Moreover, insufcient coordination between national bodies appears to result in a regulatory patchwork. Global nancial stability is unlikely to be achieved in the absenceo a comprehensive, binding and internationally coordinated ramework. Tis is neededto limit regulatory arbitrage, which includes shiting high-risk activities rom more toless strictly regulated environments. Among other measures, such a ramework shouldinclude strict limits on positions that nancial investors can take in commodity uturesand derivatives markets—measures that may also help stem volatility in capital ows andcommodity prices.

Fourth, sufcient resources must be available to developing countries, espe-

cially those possessing limited scal space and acing large development needs. Teseresources will be needed to accelerate progress towards the achievement o the MDGsand or investments in sustainable and resilient growth, especially or the LDCs. Fiscalausterity among donor countries has also aected aid budgets, as seen in the decline o ODA in real terms in 2011. Further declines may be expected in the outlook. Apart romdelivering on existing aid commitments, donor countries should consider mechanisms todelink aid ows rom their business cycles so as to prevent delivery shortalls in times o crisis when the need or development aid is most urgent. In this regard, internationally agreed taxes (such as airline levies, currency transaction taxes or carbon taxes), along withthe possibility o leveraging idle special drawing rights (SDRs) or development nancecould be considered, as suggested in a recent United Nations report.16

A jobs creation and green growth-oriented agenda as outlined above is com-

patible with medium-term reduction o public debt ratios and benign global rebalancing,as shown in a scenario o internationally concerted policies simulated using the UnitedNations Global Policy Model (GPM).17 With continued existing policies, but assuming no major deepening o the euro crisis, growth o WGP would average, at best, about 3per cent per year on average, ar rom sufcient to deal with the jobs crisis or bring downpublic debt ratios. Te alternative scenario, based on the agenda outlined above, includesa shit in scal policies away rom austerity and towards more job creation through, interalia, more spending on inrastructure; energy efciency, social programmes and tax andsubsidy measures to stimulate private investment projects in these areas; continued expan-sionary monetary policies aligned with stronger capital account regulation to stem capitalow volatility; and enhanced development assistance to the poorest nations. Te GPMsimulations show that under such a policy scenario, WGP would grow at an average rateo 4.5 per cent between 2013 and 2017, public debt-to-GDP ratios would stabilize and

16 World Economic and Social Survey 2012: In Search o New Development Finance (United

Nations publication, Sales No. E.12.II.C.1).

17 The scenario is an update o the ones presented in World Economic Situation and Prospects

2012, op. cit., pp. 33-36; and United Nations Economic and Social Council, “World economic

situation and prospects as o mid-2012 (E/2012/72).

Sufcient resources need

to be made available todeveloping countries




start alling rom 2016 or earlier. Employment levels in major developed countries wouldgradually increase and return to pre-crises levels in absolute terms by 2014 and by 2017ater accounting or labour orce growth. Te employment recovery thus would comemuch sooner than in the baseline, although remaining protracted even with the suggestedinternationally concerted strategy or growth and jobs. An additional 33 million jobs per

year on average would be created in developing and transition economies between 2013and 2017 (see box I.3).

An internationally coordinated strategy or jobs and growth

An alternative policy scenario based on the recommendations in this chapter has been created usingthe United Nations Global Policy Model (GPM). The key nding is that such a scenario would avoida widespread double-dip recession; instead, it would allow or a benign rebalancing o the globaleconomy. Job losses caused by the global nancial crisis would see recovery and a shit towardsmore sustainable scal balances and debt levels would begin, setting the global economy on a more

sustained (and sustainable) path to growth. The key dierences with the baseline policy assumptions are that:

y Policies, especially those in developed economies, shit away rom premature scalausterity and towards a more countercyclical stance, thereby supporting aggregatedemand in the short run. This is done cautiously, however. Public spending is allowedto grow, but more slowly than GDP. As tax revenues grow in response to overall incomegrowth, budget decits narrow and debt-to-GDP ratios decline over time.

y In all countries, Governments enhance public spending on social and physical inra-structure and public investment as well as expanding scal incentives or privateinvestors promoting “green” growth (including through greater energy eciency andclean energy generation). This also applies to developing countries where most addi-tional public spending is directed to inrastructure investment, including capacity insustainable agriculture and renewable energy. Green growth investments are generally

perceived to have greater job creation eects than existing “brown” technologies. This isalso assumed to be the case in the GPM.

y Industrial policy incentives implemented by developing countries are assumed tobe supportive o economic diversication and reduced dependence on commodityexports.

y Central banks and other nancial regulators in developed countries urther step upaction to prevent soaring interest rates on sovereign bonds and accelerate regulatoryaction that reduces bank ragility and helps commercial lending to grow again.

y The policy scenario urther assumes that these national policies are part o an inter-nationally concerted strategy. Policy coordination would ensure that there is sucientaggregate scal stimulus in the short run, while dierentiating stimulus across countriesin accordance with available scal and other macroeconomic policy space (based oninitial levels o indebtedness, sovereign borrowing costs and size o external surplus).

Furthermore, it is assumed that monetary policy action is better coordinated inter-nationally to prevent the strategy underlying the alternative scenario rom being dis-rupted by excessive exchange-rate and capital ow volatility. Through concerted eorts,developing countries (low-income countries, in particular), are provided with adequateaccess to ocial development assistance and other external nancing to complementdomestic resources or nancing new investments in inrastructure and sustainableenergy and agriculture.

Box I.3




Under these assumptions, growth o world gross product would accelerate to about4.5 per cent per year, with both developed and developing economies accelerating output growthby between 1 and 2 percentage points compared with the baseline (see gures A and B). Shortly a terthe new policies are in place, the jobs decit caused by the global nancial crisis o 2008-2009 would

start to close, especially in the developed countries. Employment levels in major developed coun-tries would gradually increase and return to pre-crisis levels in absolute terms by 2014, and by 2017ater accounting or labour orce growth. The employment recovery would thus come much soonerthan in the baseline, although it would remain protracted, even with the suggested internationallyconcerted strategy or growth and jobs. An additional 33 million jobs per year on average would becreated in developing and transition economies between 2013 and 2017.

The simulation also shows that more rapid recovery o growth and employment helpsto stabilize public debts. Ater an initial increase, government decits would quickly decrease, stabiliz-ing public debt ratios in the medium term and reducing them thereater (see Appendix table). Ascountries with an external surplus apply more scal stimulus, private investment and consumptionwould increase, leading to higher imports and a reduction o global current account imbalances.With investments targeting higher energy eciency and production o renewable energy, worldenergy prices would stabilize on lower levels over the medium run. Meanwhile, investment in sustain-able agricultural production would allow meeting a growing demand or ood and stabilize world

ood prices.

Box I.3 (cont’d)

Index: 2008=100

(c) Transition and developing

economies

90

95

100

105

110

115

120

China and India

CIS, and otherdeveloping

(a) Europe, Japan and other

developed economies

90

95

100

105

110

115

120(b) United States

90

95

100

105

110

115

120

Baseline Coordinated strategy for jobs and growth

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

2 0 1 6

2 0 1 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

2 0 1 6

2 0 1 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

2 0 1 6

2 0 1 7

Percentage

Baseline Coordinated strategy for jobs and growth

-6

-4

-2

0

2

4

6

8

10

12

-6

-4

-2

0

2

4

6

8

10

12

China and India

CIS and other developing

-6

-4

-2

0

2

4

6

8

10

12

(a) Europe, Japan and other

developed economies (b) United States

(c) Transition and developing

economies

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

2 0 1 6

2 0 1 7

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

2 0 1 6

2 0 1 7

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

2 0 1 6

2 0 1 7

Figure A: Employment levels o selected countries or country groups

Figure B: GDP growth rates o selected countries or country groups

Source: UN/DESA GlobalPolicy Model ( http://

www.un.org/esa/policy/

publications/ungpm.html).




Appendix (cont’d)

2012 2013 2014 2015 2016 2017

Current account decit (percentage o GDP)

United States -2.6 -2.9 -3.1 -3.5 -3.9 -4.1

Europe 1.1 1.5 1.7 1.7 1.7 1.7Japan and other developed countries -0.8 -0.6 -0.2 0.1 0.5 0.8

China and India 0.6 0.3 0.4 0.6 1.1 1.4

CIS and Western Asia (major oil exporters) 5.4 4.8 3.7 3.4 2.8 2.4

Other developing countries -0.7 -0.4 -0.2 0.0 0.1 0.2

Government debt (percentage o GDP)

United States 76.4 75.9 73.6 70.6 67.0 63.1

Europe 74.5 73.6 72.1 70.5 67.4 64.9

Japan and other developed countries 138.3 136.0 133.0 129.7 127.0 125.1

China and India 23.8 22.5 20.1 18.0 17.3 16.9

CIS and Western Asia (major oil exporters) 40.5 42.8 45.5 47.4 49.1 50.2

Other developing countries 36.6 36.6 36.3 36.0 35.9 35.9

Memo:

Growth o Gross World Product at marketrate (percentage) 2.3 3.8 4.5 4.5 4.5 4.6

Growth o Gross World Product at ppp rate(percentage) 3.1 4.6 5.2 5.2 5.1 5.2

Global creation o employment abovebaseline (millions) 0.0 27.8 42.6 53.6 64.1 32.9

Average employment creation in developingcountries above baseline (millions) 0.0 21.5 32.2 41.4 50.3 19.8

Growth o exports o good andservices (percentage) 3.2 5.9 5.6 6.0 5.0 5.0

Real world price o energy (index) 1.4 1.5 1.4 1.5 1.5 1.5

Real world price o ood & primarycommodities (index) 1.2 1.2 1.3 1.3 1.4 1.4

Real world price o manuactures (index) 1.0 1.0 1.0 1.0 1.0 1.0

Source: UN/DESA Global Policy Model, available rom http://www.un.org/en/development/desa/policy/publications/un_gpm.shtml.



37

Chapter 2

International trade

Sharp slowdown o world merchandise trade

Te vigorous recovery in world trade in the immediate atermath o the Great Recession

has quickly lost its momentum. Growth o world trade, as measured in the volume o

world imports and exports, moderated sharply or the second year in a row, dropping

rom 12.6 per cent in 2010 to 6.4 per cent in 2011 and 3.2 per cent in 2012 (gure II.1).

Te deceleration o world trade has been closely associated with the weakening o global

demand, resulting mainly rom stalling economic activity in Europe and anaemic ag-

gregate demand in the United States o America and Japan. Developing countries andthe economies in transition are increasingly eeling the eects o the slowdown through

integrated global networks o production and trade. As a result, global output and trade

have slowed in tandem.

In the euro area, import demand in countries such as Italy, Greece, Portugal and

Spain started to contract in late 2011, as austerity measures combined with the woes o debt

distress and bank ragility to cause a drop in aggregate demand. Import demand o these

countries contracted by more than 6 per cent in real terms in 2012, and declined by more

than 20 per cent in nominal terms1 during several months o the year. By the rst quarter

1 Nominal terms are in United States dollars.

Weak demand has spread

through global networks o

production and trade

Source: UN/DESA.

a Partly estimated.b Projections.

Figure II.1

Synchronized slowdown o world merchandise trade and output, 2002-2014

-15

0

15

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012a 2013b 2014b

World trade volumegrowth

WGP growth

Annual percentage growth rates




o 2012, weak demand had spread to the rest o Europe. Imports by France and Germany plummeted by more than 10 per cent in nominal terms (annualized rate) during the secondquarter o the year, but expanded modestly in real terms over the year. As intraregional tradeaccounts or about 70 per cent o total European Union (EU) trade, this was also reectedin commensurate export declines in most European countries. Import demand also slowed

signicantly in the United States and Japan, especially during the second hal o 2012. As a result, East Asian countries, such as the Republic o Korea, Singapore andaiwan Province o China that have strong trade ties with the major developed countries,saw their exports decline during most o 2012. China’s export volume growth also deceler-ated and came to a halt in mid-2012, along with other emerging countries such as Braziland India. Further down the global value chain, primary commodity-exporting countriesollowed suit, with many registering export declines in the second hal o 2012. In turn,

weaker exports and GDP growth have depressed import demand in developing countries,urther sotening trade with developed economies.

Four years ater the start o the Great Recession, external demand, as measuredby the volume o world imports, is still ar below pre-crisis trend levels, which now appearunsustainable, especially or developed countries. In the baseline outlook (see chapter I),

global economic activity is expected to remain weak in 2013 beore picking up modestly in 2014. As a result, international trade will likely continue driting urther below trendlevels in both developed and, to a lesser extent, in developing countries (gure II.2). In2009, the import volume o developed countries dropped 26 per cent below the pre-crisistrend level. Te gap narrowed slightly in 2010-2011, but widened again in 2012. In thebaseline scenario, the gap is expected to remain as large as 25 per cent in 2014. Te importvolume o developing countries also ell well below the trend (about 17 per cent) in 2009,but recovered more strongly during 2010-2011, reducing the gap to 7 per cent. As theglobal economic recovery is expected to remain elusive, however, the gap is also expectedto widen urther to 9 per cent or developing countries in 2014.

Import demand is

driting urther below

pre-crisis trends

Source: UN/DESA.

a Partly estimated.b Projections.

Figure II.2

Imports o developed and developing countries, 2000-2014

100

150

200

250

300

350

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Import level developed countries (2001=100)

Import trend developed countries (2001-2007)

Import level developing countries (2001=100)

Import trend developing countries (2001-2007)



39International trade

Nonetheless, as their economies and export sectors continue to show greaterresilience, the share o developing countries in world trade has increased by 6 percentagepoints over the last ve years, reaching 42 per cent in 2012. Furthermore, developing coun-try import growth currently contributes to about hal o world import demand growth,compared to 43 per cent beore the crisis. rade in developing countries—with their high

potential growth and increasing integration into global supply chains—is expected togrow aster than in developed economies. However, the potential economic gains or thesecountries may be accompanied by increasing contributions to the already steadily ris-ing global carbon emissions (box II.1). Global economic woes could urther complicate

Global production chains, reight transport

and climate change

International trade is a driver o economic growth in many countries and a pillar o globalization.Simultaneously, the transport o traded goods, intensied by the rise o global production chains and

multinational corporations (MNCs) that generate growing ows o trade in tasks and intrarm trade,produces signicant carbon dioxide (CO

2) emissions. This negative externality associated with the

environmentally suboptimal organization o global production chains and international trade owsis, by and large, ignored by policymakers.

Currently, about 90 per cent o merchandise trade (excluding intra-EU trade) is shippedby sea. As maritime shipping only accounts or 2.7 per cent o global CO

2emissions,a the signi-

cance o trade-related emissions is sometimes downplayed.b The picture changes drastically, how-ever, when considering intra-EU trade and transport o goods rom ports to their destination usingemission-intensive modes o transportation. Internationally traded goods are estimated to generateon average 50 per cent more CO

2emissions than locally traded goods. The estimate is much higher

or traded manuactured goods, especially or electronics and machinery, which represent a signi-cant share o intrarm trade.c As traded goods embody about 21 per cent o global CO

2emissions,d

transport associated with merchandise trade alone may thus contribute to more than 7 per cent o

global CO2 emissions.

e

Over the past our decades, the volume o merchandise trade has grown at an annualrate o 5 per cent, about 2 per cent aster than global economic growth. Rapid trade growth partlystems rom the globalization o consumption and, more importantly, o production. The latter issupported by the rise in global production chains’ integration o capital and advanced technologiesrom developed countries and cheap labour rom developing countries. While ecient and prot-able rom the point o view o MNCs, this restructuring o production processes has given rise to avast expansion o intrarm trade, which currently accounts or almost 50 per cent o imports in theUnited States and probably about one third o total international trade.f

Expanding world trade is bound to come with greater environmental costs i letunabated. In the absence o counteracting policies (see below) and i both the trade volume andtrade-related CO

2emissions would continue to grow at an annual rate o 5 per cent, both would

double within 15 years. The share o trade in world gross product (WGP) would continue to increase,ostering the expansion o transport and CO

2emissions (gure). Trade volume would increase rom

more than 10 billions tons (Bt) in 2011 to over 20 Bt in 2026 and trade-related CO2 emissions wouldrise rom 2.2 gigatons (Gt) to 4.4 Gt during the same period. Faced with these trends that move awayrom climate change mitigation targets, policymakers are actively promoting measures that are toreduce emissions generated by reight transport. Thus ar, however, the approach is ocused onlyon the transport sector without taking into account the broader implications o the environmentallydamaging organization o global production chains and steadily increasing trade ows.

Box II.1

a International MaritimeOrganization, “SecondIMO GHG Study 2009”,available rom http://www.imo.org/blast/blastDataHelper.asp?data_

id=27795&lename=GHGStudyFINAL.pd.

b See World TradeOrganization, “The impacto trade opening on climatechange”, available romhttp://www.wto.org/english/tratop_e/envir_e/climate_impact_e.htm.

c Anca D. Cristea andothers, “Trade and thegreenhouse gas emissionsrom international reighttransport”, NBER WorkingPaper, No. 17117 (Cambridge,Massachusetts: National

Bureau o Economic Research,June 2011).

d Glen P. Peters and EdgarG. Hertwich, “CO

2embodied

in international trade withimplications or global climatepolicy”, Environmental Science& Technology , vol. 42, No. 5 (1March 2008), pp. 1401-1407.

e See Stern Review onthe Economics o ClimateChange, available rom http://webarchive.nationalarchives.gov.uk/+/http://www.hm-treasury.gov.uk/independent_reviews/stern_review_economics_climate_change/sternreview_index.cm.

f Rainer Lanz and SébastienMiroudo, “Intra-rm trade:patterns, determinants andpolicy implications”, OECD Trade Policy Paper, No. 114(24 June 2011).




Promoting sustainability in reight transport

About 80 per cent o merchandise trade (including intra-EU trade) is shipped by sea. This is a relativelyenergy-ecient mode o transport that has expanded at an average annual rate o 3 per cent overthe last 30 years. I seaborne trade would continue to grow at this pace without any global actionbeing taken to reduce CO

2emissions in that sector, seaborne trade and related CO

2emissions would

double by 2035. The International Maritime Organization (IMO) asserts that measures aecting ship

and uel technology could improve energy eciency and reduce the emission intensity (CO2 /ton-mile) by 25 to 75 per cent below current levels. As mandated under the United Nations Framework Convention on Climate Change (UNFCCC), IMO adopted in 2011 a set o global rules to control CO

2

emissions rom international shipping. The package included technical and operational measures inthe orm o the Energy Eciency Design Index (EEDI) and the Ship Energy Eciency ManagementPlan (SEEMP). These measures will enter into orce in 2013 and apply to all ships o 400 gross tonnageand above. However, the EEDI will only apply to new ships. Given the long lie cycle o ships and therelatively young average age o the current eet, emission reduction due to EEDI will not materializein the near uture.

The shipping industry is also taking action. This year, or instance, SinoPacic ShipbuildingGroup launched a new generation o uel-saving and environmentally riendly bulk carriers, which re-duce uel consumption by 13 per cent compared to the equivalent size bulk carriers currently operating.

Various opportunities have urther emerged or improving environmental sustainabilityin ports, such as: enhanced port inrastructure and ecient terminal layout designs that reduce timeand processes required to move cargo; switching to greener modes o transport or hinterland ac-cess, such as by rail or inland waterways; the adoption o energy eciency programmes; and the useo renewable energy. By implementing such measures, the Rotterdam Shortsea Terminal reduced itsCO

2emission by nearly 70 per cent.g

Eorts to achieve sustainability in maritime transport demand an integral approach,as international trade is carried through multimodal transportation systems. CO

2emissions largely

emanate rom land modes, in particular haulage by road, which is projected to expand signicantly in

100

120

140

160

180

200

220

240

260

1 9 7 1

1 9 7 3

1 9 7 5

1 9 7 7

1 9 7 9

1 9 8 1

1 9 8 3

1 9 8 5

1 9 8 7

1 9 8 9

1 9 9 1

1 9 9 3

1 9 9 5

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2 0 0 1

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20

25

30

35

40

45

50

55Global CO2 emissions from

transport (million metric tons,1971=100, left-hand scale)

International trade as a shareof global GDP (percentage,right-hand scale)

CO2

emissions rom transport and share o international trade inworld gross product move in tandem

Source: World Bank.

g Harry Geerlings and Ronvan Duin, “A new method

or assessing CO2-emissions

rom container terminals: apromising approach applied

in Rotterdam”, Journal o Cleaner Production, vol. 19,Issues 6-7 (April-May 2011),

pp. 657-666.

Box II.1 (cont’d)




reaching an agreement in the climate negotiations, illustrated by the inadequate progressin setting sufciently ambitious binding carbon targets or al l countries at the EighteenthConerence o Parties (COP-18) to the United Nations Framework Convention on ClimateChange (UNFCCC).

Regional trade patternsImport demand declined across all groups o countries and regions in 2012, except Arica (gures II.3 and II.4). Although trade ows remained robust in most regions during therst hal o the year, the contagion o downward-spiralling demand progressively spreadrom Europe and other developed economies to the rest o the world during the secondhal o 2012.

As its economy ell back into recession, import volume in the euro area con-tracted by 0.1 per cent in 2012, ater having increased by 4.8 per cent in the previous year.Subdued growth in import volume in core euro area countries did not completely osetsharp declines in periphery countries that had been weakened by hard-hitting austerity measures. Export volume growth decelerated rom 6.9 per cent in 2011 to 2.8 per cent in

2012, and remained positive, even in the debt-distressed countries. Unlike in the euro area,import demand slightly increased in the United Kingdom o Great Britain and NorthernIreland, despite severe scal austerity measures. Exports rom the United Kingdom de-clined, however, contributing to the economic downturn. Growth in the volume o exportsrom the EU at large (all 27 members) decelerated to 2.3 per cent in 2012, but remainedpositive, helped by comparatively stronger demand rom other regions and a weaker euro.

In North America, import volume growth decelerated rom 5.2 per cent in2011 to 3.1 per cent in 2012. Exports remained a driver o economic activity, despite a

developing countries in the next decades. The rate o surace reight activity worldwide—includingrail, medium-duty truck and heavy truck (in trillions o ton-kilometres)—is expected to increase byan average annual rate o 2.3 per cent and double within the next thirty years. h With these trends,trade-driven economic growth and environmental sustainability will remain incompatible objectives,

unless emissions rom land reight transport are more eectively addressed. There are ways to improve sustainability in land reight transport and logistics through a

comprehensive and integrated approach, but this may require trading o energy eciency gains withtransport costs and, potentially, the speed and reliability o services. This entails, inter alia, optimizingthe perormance o multimodal logistics chains, improving the competitiveness o environmentallyriendly modes o transport, leveraging technologies capable o improving energy eciency, logisti-cal eciency, and reducing emissions, as well as creating integrated transport networks and dedi-cated reight corridors that are ecient and environmentally riendly.

Initiatives are being developed at the industry level to improve energy eciency invehicles and expand the use o ICT-driven applications to optimize operations. By reducing uel con-sumption, kilometres driven, and requency o vehicles travelling empty or partially loaded, the lattercould help achieve a 16 per cent global reduction in land reight transport emissions by 2020.i

Current eorts to reduce CO2

emissions rom reight transport are, however, insucient

to achieve the energy and environmental sustainability required by internationally agreed climatetargets. Greater eorts are needed to reach more integrated approaches that encompass all modeso transportation. Multilateral approaches that jointly address economic and environmental chal-lenges are required to ensure the coherence between international trade, transport and environ-mental policies.

h World Business Council orSustainable Development,“Mobility 2030: Meeting theChallenges to Sustainability”,

The Sustainable MobilityProject (Geneva, July 2004),available rom http://www.wbcsd.org/web/publications/mobility/mobility-ull.pd.

i The Climate Group, “Smart2020: Enabling the lowcarbon economy in theinormation age”, a report by

The Climate Group on behal o the Global eSustainabilityInitiative, 2008, availablerom http://www.smart2020.org/_assets/les/02_Smart2020Report.pd.

Box II.1 (cont’d)




in several countries in South America, import demand growth in the Caribbean and Latin America at large remained robust at over 5 per cent in 2012. In Arica, import and exportvolume growth declined slightly in most countries in 2012. However, a small number o signicant outliers, such as Libya and Nigeria, experienced a spectacular rebound aterhaving aced steep export declines in 2011. Owing to these exceptional rebounds, Arica

was the only region which saw its growth rate o trade volume increase in 2012.

Primary commodity marketsUnderpinned by initial ly strengthening industrial activity,2 strong demand rom develop-ing countries, and more optimistic market sentiment ollowing the European CentralBank ’s (ECB) long-term renancing operations (LROs),3 the United Nations Conerenceon rade and Development price index 4 rose signicantly in the rst quarter o 2012 orthree groups o commodities: all ood;5 agricultural raw materials; and minerals, oresand metals. From the second quarter on, however, prices ell as a result o the economicslowdown in China and the intensication o sovereign debt crises in the euro area.

Prices o ood and base metals and ores diverged in the third quarter. Te oodmarket tightened because o supply disruptions created by adverse weather in the UnitedStates, Australia and the Black Sea region. Te surge in maize, wheat and soybean prices

put a strain on the ood market. By contrast, the prices o many important base metals2 World Bank, Global Economic Prospects: Managing Growth in a Volatile World , vol. 5 (Washington,

D.C., June 2012).

3 See United Nations, Economic and Social Council, World economic situation and prospects as o

mid-2012 (E/2012/72).

4 Unless otherwise stated, all indices used in this section are United Nations Conerence on Trade

and Development (UNCTAD) price indices, measured in United States dollars.

5 The category o all ood includes ood, tropical beverages, and vegetable oilseeds and oils.

Monetary easing heightens

commodity price volatility

Adverse weather pushed

up ood prices

Source: UN/DESA.

Figure II.4

Import volume growth in selected regions, 2010-2012

East Asia South Asia Western Asia Latin America North Africa Sub-Saharan

& the Caribbean Africa

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

2010

20112012





and ores continued their downward trend in July and August o 2012 as global economicprospects remained gloomy. Copper prices declined signicantly compared with 2011. Atthe same time, productive investment in a luminium, nickel and zinc markets over the lastdecade have increased supply, exerting long-term downward pressure on prices.

In September, several major central banks engaged in urther unconventional

monetary policies to revive their economies. While the ull impact o these policies onemployment generation and economic growth remains unclear, commodity markets re-sponded quickly, with the prices o gold and key base metals rising signicantly.6

Food and agricultural commodities

During the rst nine months o 2012, the ood price index remained high, despite short-term price uctuations. Led by high prices o maize, wheat and soybeans, the price index rose sharply to 283 points in July 2012, an increase o 11 per cent rom January 2012.However, the price pattern diered within various commodity sub-groups.

During the rst quarter o 2012, the ood price index rose by around 7 percent. Prices stabilized in the ollowing three months beore jumping to a record high in

July, mainly resulting rom tight maize and wheat supply and low stock levels. In theUnited States, severe drought in the corn belt reduced yield prospects and drove the priceo maize to an al l-time high in July. Poor weather also adversely aected the outlook or

6 In September 2012, the average gold price surged to $1,744 an ounce, 1.6 per cent lower than its

historical peak in September 2011. The prices o copper, aluminium, nickel, lead, zinc and tin also

rose considerably compared to August 2012.

Food prices surged

throughout 2012

Maize and wheat stocks ell

to our-to-six-year lows

Source: UNCTAD.

Figure II.5

Agricultural commodities price indices, January 2000-September 2012

0

50

100

150

200

250

300

350

0 1 / 2 0 0 0

0 7 / 2 0 0 0

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0 7 / 2 0 1 1

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0 7 / 2 0 1 2

Agricultural raw materials

Vegetable oilseeds and oils

Tropical beverages

Food

Index: January 2000 = 100




wheat production in Kazakhstan, the Russian Federation and Ukraine. Globa l stocks ormaize and wheat are expected to all to six- and our-year lows, respectively, by the end o 2012/2013.7

Te price o rice continued to be relatively stable, however, as stock levels re-main high and supply and demand are broadly in balance. Te rice-pledging programme in

Tailand—which subsidizes armers by setting a xed price or their rice harvests—signi-cantly reduced the country’s rice exports in 2011. o date, the impact o this governmentpolicy on the global rice market is limited thanks to adequate rice stocks and stable supply rom other major exporting countries such as India and Viet Nam. However, the dynamicso the world rice market might change quickly i other exporting countries also intervenein the market through policy measures, such as subsidies or export bans/restrictions.

Te spike in major cereal prices has raised concerns that another ood crisismay be in the ofng. Te countries o the Group o wenty (G20) are closely monitor-ing global ood markets through the Agricultural Market Inormation System (AMIS)launched in June 2011. While increased transparency may contribute to a better alignmento spot prices with undamentals in physical markets, it does not address the instability caused by nancial speculation in derivatives markets, and may thus limit the eectiveness

o this initiative.8

High maize prices have also revived the debate on using grains as eedstock to produce biouels. Under increasing calls or adjustments in the EU and United Statesbiouel policies, the European Commission has proposed to cap crop-based biouels to 5per cent o transport uel until 2020.9

Te vegetable oilseeds and oils price index soared by 10 per cent during theour months to April 2012. Te index jumped again in the third quarter, mainly drivenby soybean prices, which reached a record high o $684 per ton, an increase o 21 per centrom June 2012. A combination o actors contributed to the price surge: concerns aboutreduced United States supply caused by adverse weather conditions, robust demand rom

Asia, and tight stocks.During the rst hal o 2012, the tropical beverages price index continued its

downward trend, which started in May 2011, with only a slight recovery in the third quar-ter o 2012. Coee prices ell by 33 per cent rom their peak o $2.13 in April 2011 downto $1.42 per pound in June 2012.10 In July, coee prices rebounded to $1.52 a pound,owing to concerns over the impact o heavy raina ll on Brazi l’s coee supply.

Te price o cocoa beans uctuated between $1.03 and $1.07 per pound dur-ing the 7 months to July 2012. Te relatively stable prices resulted rom the osetting eects o an expected production decline in West Arica, caused by erratic weather, as

well as a sharp all in cocoa grindings in Europe and North America—both aected by the economic crisis—versus resilient demand growth in emerging markets.11 In August

7 International Grains Council, Grain Market Report, GMR No. 427, 25 October 2012.

8 See UNCTAD, Price Formation in Financialized Commodity Markets: The Role o Inormation

(United Nations publication, UNCTAD/GDS/2011/1).9 See Barbara Lewis and Michele Kambas, “EU Commission to cap ood-based biouels in major

shit”, Reuters, 17 September 2012, available rom http://www.reuters.com/article/2012/09/17/

us-eu-biouel-idUSBRE88G0IL20120917.

10 The coee prices reer to coee composite indicator prices which consist o the prices or Arabic

and Robusta coee.

11 In August 2012, the International Cocoa Organization orecast that world cocoa bean production

would decline by 8.1 per cent during the 2011/2012 cocoa season compared to the previous

season, and reach 3.962 million tons.

The Group o Twenty osters

transparency in physical

ood markets, but stops

short o interering with

derivatives markets




Prices o nickel, aluminium, lead and zinc climbed in early 2012, driven by strong demand and the then prevailing optimism about global economic prospects. SinceMarch, however, sluggish demand, coupled with oversupply, has pushed prices down-

ward. Te price o nickel, a crucial raw material in the production o stainless steel, hit a 38-month low in August 2012. Chronic oversupply, high stocks and weakened demand

have driven the average aluminium cash price on the LME down to $1,838 per ton, thelowest level since October 2009. In June and August 2012, the prices o lead and zinc hittheir lowest levels since August 2010.13 In September, however, the prices o these metalssurged sharply at the announcement o urther monetary easing by the central banks o several developed economies.

13 According to the International Lead and Zinc Study Group, supply exceeded demand by 49,000

tons (about 0.8 per cent o demand) and 135,00 0 tons (about 1.9 per cent o demand), respecti vely,

in the global rened lead and zinc metal market during the rst seven months o 2012.

Financial investment and physical commodity holdings

Financial investors continue venturing into commodity markets. Commodity assets under manage-ment (AUM) increased almost ortyold between 2001 and April 2011, when they reached a record

o $458 billion. Assets declined sharply thereater but rebounded to reach $439 billion in September2012, 11 per cent above their level at the beginning o the year.a Since mid-2008, nancial investorshave been looking or new ways to access commodities as an asset class. They became less interestedin traditional broad-based passive index investment instruments, which only allow betting on ris-ing prices. Instead, to optimize investment strategies in unstable markets, nancial investors haveincreasingly opted or more active instruments, allowing bets on both rising and declining prices.b As a result, index investment as a share o total commodity AUM declined rom 65-85 per cent in2005-2007 to 32 per cent in September 2012.c

Exchange-traded products (ETPs), particularly utures-based exchange-traded unds(ETFs), have become the largest investment vehicles in commodity markets (gure). ETFs issue shareswhich are traded like equities on a securities exchange. Physically-backed ETFs have also becomeincreasingly attractive or nancial investors, because they oer the advantage o establishing a di-rect link between nancial investment and physical inventories and thereby give investors directexposure to commodity spot prices. This avoids uncertainty related to possible dierences between

spot prices and prices o utures contracts, to which traditional index unds and utures-based ETFsare exposed.

Until recently, physically-backed ETFs were conned to precious metals. In 2010, how-ever, some European banks started to oer such vehicles related to industrial metals, especiallycopper. While accumulated investment has remained limited, this situation could change rapidly. Atthe time o writing in November 2012, the United States Securities and Exchange Commission (SEC)was deliberating whether to approve two requests to list and trade physically-backed copper ETFs.d Opponents o the approval, which include large industrial rms, have expressed concern that theresulting large purchase o physical copper holdings would cause rising prices and reduced avail-ability o physical copper. Such concerns are related to recent events in aluminium markets wherethe arrival o investment banks was ollowed by a record-level surge o the premium that consumerspay or metal—surpassing the benchmark price set at the London Metal Exchange (LME), the world’sleading exchange or non-errous metals.e This surge led to ears that allowing nancial investors toaccumulate and store physical copper holdings could lead to inated prices that would destabilize

the market and, ultimately, disrupt metal supply and industrial production. Sizeable eects couldindeed occur, given that the two planned ETFs combined would absorb more than 180,000 metric

Box II.2

a Barclays, The CommodityInvestor, October 2012.

b UNCTAD, Trade and

Development Report 2011:

Post-crisis policy challenges in

the world economy (UnitedNations publication, SalesNo. E.11.II.D.3), chap. V.

c Barclays, The CommodityInvestor, op. cit .

d See Securities andExchange CommissionRelease No. 34–67965; SR–NYCEArca-2012-28,2 October 2012,available rom http://www.sec.gov/rules/sro/nysearca/2012/34-67965.pd.

e Jack Farchy, “Banks orcealuminium market shake-up”, Financial Times, 12September 2012, availablerom http://www.t.com/intl/cms/s/0/c3b3e02e-c3-11e1-a42-00144eabdc0.html#axzz2DXWwGjEH.




Ater reaching $1,743 per ounce in February 2012, gold prices retreated in

the ollowing months, owing to weaker demand rom the jewellery industry and rom

investors. Te price o gold quickly recovered and hit a 12-month high in September as ex-

pansionary monetary policies in major developed economies renewed ination concerns.

tons o copper,f which corresponds to about 80 per cent o recorded copper inventories held at theLME global network o warehouses in mid-September 2012.g

But even i the Securities and Exchange Commission eventually rejects approval o these two ETFs, the physical commodity operations o nancial investors are likely to continue a-ecting prices through other mechanisms. Ownership o warehouses or storage tanks, or instance,allow banks to realize certain prots based on so-called contango nancing. “Contango” indicates

situations in which prices o utures contracts with more distant delivery dates exceed those o near-term contracts. When markets are well supplied, producers would normally reduce their activitiesto support prices. However, banks may encourage producers to maintain their level o activity byaccepting their inventory as collateral or secured nancing. The encumbered collateral, which wouldbe kept o market and hedged through derivatives, would not only generate inventory ee revenues,but also end up yielding a positive return on derivatives or banks because o the orward contangostructure.h The act that banks can modulate the level o stored physical commodities independentlyo market undamentals tends to add to price volatility. More generally, the act that these inventoriestypically remain unreported creates inormation asymmetry in the market and makes it impossibleor commercial market participants to determine the price that would solely reect supply anddemand undamentals. Ultimately, banks’ eorts to expand their business activities to include themanagement o physical commodity inventories create inormation asymmetries and increase therisk o the emergence o conicts o interest and perverse incentives detrimental to other market

participants. Considering all o the above elements together raises doubts on the social value o these new nancial instruments and practices.

Box II.2 (cont’d)

Source: Barclays.

f Josephine Mason, “Copperusers attack ETF plans ahead

o SEC ruling”, Reuters,20 July 2012, availablerom http://in.reuters.

com/article/2012/07/19/copper-et-jpmorgan-

idINL2E8IJF7P20120719.See also Vandenburg &

Feliu LLP, “Comments o Vandenberg & Feliu LPP on

proposed rule change tolist and trade shares o the

JPM XF Physical Copper Trust pursuant to NYSE Arca

equities rule 8.201”, 9 May2012, available rom http://www.sec.gov/comments/

sr-nysearca-2012-28/nysearca201228-1.pd.

g Chris Kelly and SilviaAntonioli, “Copper hitsnew 4-1/2 month top,

demand worries resurace”,Reuters, 19 September

2012, available romhttp://a.reuters.com/

article/metalsNews/idAFL5E8KJA2W20120919.

h Izabella Kaminska, “Outingthe aluminum squeeze,

Deripaska style”, Financial

Times, 13 September2012, available rom

http://talphaville.t.com/blog/2012/09/13/1159071/

outing-the-aluminum-squeeze-deripaska-style/.

0

50

100

150

200

250

300

350

400

450

500

A p r - 0 6

O c t - 0 6

A p r - 0 7

O c t - 0 7

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O c t - 0 8

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O c t - 0 9

A p r - 1 0

O c t - 1 0

A p r - 1 1

O c t - 1 1

A p r - 1 2

Institutional and retail commodity assets under management ($bn)

Commodity medium term notes

Exchange traded commodity products

Commodity index swaps

Exchange traded commodity products gaining market share ater theglobal nancial crisis




Te rst our months o 2012 saw little movement in iron ore prices, with spotprices in Brazil uctuating about $144 per dry metric ton.14 Since May 2012, however,prices dropped sharply and hit a 34-month low in September. Te plunge was caused inlarge part by the shrinking demand or steel rom China’s construction and manuactur-ing industries, high levels o Chinese stocks, and sufcient iron ore supply. Te nancial

turbulence in the euro area and slowdown o other emerging economies, such as Brazil,also contributed to the price decline.

The oil market

Global oil demand continued to increase at an annual rate o about 1 per cent in 2012, mir-roring the global economic slowdown. Anaemic growth in developed economies has led toa 0.6 per cent decline in oil demand rom the Organization or Economic Cooperation andDevelopment (OECD) countries. Weakening economic growth in emerging economies,particularly China and India, capped oil demand growth rom non-OECD countries at2.8 per cent. Global oil production, in contrast, increased by 3 per cent to an average o 90.8 million barrels per day (mbd) during the rst nine months o the year, thereby gener-

ating excess supply o more than 1 mbd on average during that period. Tis rare situationmainly resulted rom the substantial production increase o 6 per cent in the Organizationo the Petroleum Exporting Countries (OPEC). Te sanctions-induced decline in Iranianoil output by 0.8 mbd was more than compensated or by the 1.3 mbd o Libyan crudethat returned to international markets in early January, and by the activation o almost 2mbd o Saudi spare capacity since the beginning o the Arab Spring. As a consequence, oilstocks in the OECD countries and major emerging countries increased slightly over therst hal o 2012.

During the rst three quarters o 2012, the average price o oil remained almostunchanged with respect to last year. Brent, or instance, averaged $112 per barrel (pb),compared with $111 or 2011 as a whole, and the average spread between Western exasIntermediate and Brent crudes stayed around $16. Prices remained volatile, however, with

Brent uctuating within a band o $40, and one out o every ve trading days ending witha price change in excess o $2, excluding intraday volatility (gure II.7). Quantitative eas-ing measures, the imposition o sanctions on Iranian oil exports, and certain declarationsby political leaders in the Middle East punctuated most o the signicant turnarounds inthe oil market.

Following the rst LRO o the ECB on 21 December 2011, stock marketssurged in January. Te year thus started with abundant liquidity in nancial markets andmisperceptions about a rapid economic recovery. A portion o the liquidity injected intothe nancial system ended up being invested in commodity derivatives markets. Daily vol-umes or monthly Brent crude utures contracts increased by 49 per cent in the six monthsollowing the rst LRO (gure II.8). In a context o near-zero interest rates, the rising

risk premium on oil prices associated with growing tensions in the Middle East attractedurther speculative trading in derivatives markets, increasing hedging costs or physical

14 The pricing mechanisms o iron ore have experienced a undamental change in recent years. In

2010, a quarterly index-based pricing mechanism was substituted or a decades-long annual

benchmark pricing system. With shorter pricing cycles, the price volatility has increased and

promoted the rapid expansion o iron ore derivative markets in the past two years. Currently,

there are a large number o published iron ore prices and indices, such as The Steel Index (TSI),

Metal Bulletin and Platts. In this section, iron ore prices or Brazil (IMF estimates) were used as a

reerence.

Average oil prices reached

record highs despite weak

demand growth and

excess supply

Abundant nancial market

liquidity and geopolitical

tensions are keeping prices

high and volatile




and additional output would itsel be trapped in the Gul region given that hal o Saudi ex-ports transit through the Hormuz Strait, these declarations seem to have had a limited eect.

At the end o April, dissent in the Israeli security establishment suraced and weakened ears or an imminent military strike at the time, causing a decline in the Brent

price. Te all accelerated as Saudi output increased in anticipation o the ban on Iranianoil imports imposed by the EU and the United States that came into orce on 28 June.Te Brent price continued to decline until the third week o June, bottoming below trendat $88. In late June, the price o Brent jumped by 7 per cent at the announcement that a bank recapitalization agreement had been reached in the euro area 17 and then continuedrising to above $110 in August, hovering around its yearly average annual price during thesubsequent months.

o a lesser extent, other events also aected oil price developments. Te banon Syrian crude oil exports imposed by the United States and the EU at the end o 2011,South Sudan’s shut down o oil production in January 2012, supply outages in other coun-tries, and rising demand in Japan all exerted upward pressures on oil prices. On balance,however, market conditions were characterized by excess supply during the rst three

quarters o the year, not warranting the record-high average oil price observed during thatperiod. It is thereore likely that abundant liquidity in nancialized commodity marketshad a disproportionate and distorting eect on oil prices.

In the outlook, global oil demand is assumed to urther expand by 1 per centin 2013, to 90.5 mbd, as declining demand rom OECD countries part ly osets growing

17 See UNCTAD, “Don’t blame the physical markets: nancialization is the root cause o oil and

commodity price volatility”, Policy Brie, No. 25 (September 2012).

Temporarily ading

geopolitical risks and use o

Saudi spare capacity cause

short-lived price plunge

Oil demand is expected to

remain subdued in 2013

Source: United StatesEnergy Intelligence Agencyand IntercontinentalExchange (ICE).

Figure II.8

Brent price and open interest in daily volumes or ICE Brent crude utures,January 2010-November 2012

Brent spot price (left-hand scale) Total Open Interest (right-hand scale)

50

60

70

80

90

100

110

120

130

Jan

2010

Apr2010

Jul2010

Oct2010

Jan2011

Apr2011

Jul2011

Oct2011

Jan2012

Apr2012

Jul2012

Oct2012

D o l l a r s p e r b a r r e l

500,000

700,000

900,000

1,100,000

1,300,000

January 4, 2010 MohamedBouazizi

self-immolation

No-y zoneover Libya

LTRO1

LTRO2

Israelidissent

Westernimport

ban QE3

V o l u m e o f t o t a l o p e n i n t e r e s t

Saudideclarations




demand in emerging markets. On the supply side, non-OPEC countries are expected topost an increase in output o 1.3 per cent in 2013, to 53.9 mbd, driven by expanding output in Canada and the United States. Supply in non-OECD countries, which provideabout 55 per cent o non-OPEC output, is expected to rise by 0.4 percent as oil productionincreases in Brazil and in countries o the ormer Soviet Union.

As a consequence, the Brent price is assumed to average $105 pb in 2013 in a market in which prices continue to be strongly inuenced by the risk premium associated with geopolitica l tensions, tight spare capacity among OPEC producers, and nancialmarket conditions. Te outlook is subject to signicant uncertainty. A blockade o theHormuz Strait could create major supply shortages and trigger unprecedented price surges.Decreasing tensions in the Middle East or weaker-than-expected economic activity in de-veloping countries, in contrast, would create signicant downward pressure on oil prices.

Volatile terms o trade

rade aects national income through two channels: the prices o exports and importsand the volume o demand.18 Changes in the terms o trade, which is dened as theratio o export prices over import prices, provide a synthetic measure o internationalprice shocks associated with trade. Among developing countries, exporters o oil andother minerals and mining products have enjoyed strong improvements in their termso trade since 2000. For exporters o agricultural products the terms o trade remainedairly stable, while they deteriorated or countries exporting manuactures (gure II.9).Non-agricultural commodity exporters saw the strongest declines in the terms o tradeduring the height o the global nancial crisis, but recovered rapidly thereater. Te swingsor exporters o agricultural commodities and manuactures were much less pronounced.

Te magnitude o trade shocks resulting rom changes in both prices and vol-umes has varied greatly across regions and country groups with dierent export structures(gures II.10a and II.10b).19 Across all regions, the negative trade shock in 2009 was

ollowed by a strong rebound in 2010-2011. Te shock o 2009 resulted primarily romthe stark decline in global demand (more than 3 percent o WGP), as well as rom alling import and export prices in every region (or the world as a whole, the terms o tradeshocks are netted out). Economies in transition, Arica and Western Asia had to cope withthe largest trade shocks.

Energy exporters aced the sharpest price uctuations over the last ew years.Mineral and agricultural exporters also aced strong swings in export prices, but in many cases these were mitigated in terms o their impact on the trade balance by parallel swingsin energy prices on the import side. Least developed countries (LDCs) as a group do notseem to have been aected as severely by terms-o-trade shocks, but this relatively milderimpact mainly reects the large heterogeneity in export dependence within this group,

which is composed o energy and minerals exporters among a number o Arican LDCs,

agricultural exporters among other Arican LDCs, and agriculture and manuacturing ex-porters in Asia. Individually, these countries tend to be highly vulnerable to trade shocks.

18 The eects o each o these actors can be quantied with some degree o accuracy by combining

inormation rom COMTRADE (import and export structure), UNCTAD and other sources (international

prices), Netherlands Bureau or Economic Policy Analysis (CPB) and other sources (volume changes

o imports and exports). See the World Economic Vulnerability Monitor technical note available rom

http://www.un.org/en/development/desa/policy/publications/wevm/monitor_note.pd.

19 For more details about the estimation o trade shocks, see the World Economic Vulnerability

Monitor technical note, ibid.

Terms o trade improved or

mineral and oil exporters

Energy exporters ace the

sharpest terms-o-trade

uctuations

Non-oil commodity

exporters also aced sharp

price swings




Source: UNCTAD andUN/DESA World EconomicVulnerability Monitor.

Figure II.9Barter terms o trade o selected groups o countries by export structure, 2000-2014

60

80

100

120

140

160

180

200

220

240

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Oil exporters

Exporters of minerals

and other mining productsExporters of agricultural products

Exporters of manufactures

Index: 2000 = 100

-15

-12

-9

-6

-3

0

3

6

9

12

1.3 0.6 5.8 1.6 3.7 4.4 2.0 1.1

0.6 -0.4 6.5 0.9 9.1 1.6 4.1 -1.2

-3.2 -2.7 -10.3 -2.2 -11.4 -2.1 -5.1 -0.4

3.3 2.1 6.2 3.5 6.7 6.8 3.4 2.8

0.9 0.6 3.8 1.1 2.7 0.9 0.8 -0.2

1.2 1.0 1.8 1.0 0.2 1.9 0.8 0.6

WorldDevelopedEconomies EiT Latin Am. West Asia

East +SouthAsia Africa LDCs

Percentage of GDP

2001-07

2008

2009

2010

2011-2012

2013-2014

15

Source: UN DESA WorldEconomic VulnerabilityMonitor (WEVUM),available rom http://www.un.org/en/development/desa/policy/publications/wevm.shtml. Data or 2013and 2014 are baseline UnitedNations projections.

Figure II.10aTrade shocks by main geographic regions and country groupings, 2001-2014




Source: UNCTAD.

-20

-10

0

10

20

30

40

2007 2008 2010 2011

World

Developed economies

Developing economies

Transition economies

Least developed countries


2009

Figure II.11Services exports by major country groupings, 2007-2011

Source: UNCTAD.

-20

-10

0

10

20

30

40

2007 2008 2010 2011

WorldDeveloped economies


Transition economies



2009

Figure II.12Services imports by major country groupings, 2007-2011




In the ourth quarter o 2011, world services exports rose by only 3 per centyear-on-year, a drop o 8.5 per cent compared to the previous quarter. Expansion remainedsluggish in the rst quarter o 2012 and came to a halt in the second quarter, decelerating along with global output and merchandise trade.20

In 2011, the value o world services trade represented 12 per cent o WGP.

Merchandise trade, in contrast, represented more than 50 per cent. Te share o develop-ing countries in total world services trade remains well below their share in total worldmerchandise trade, estimated at about 42 per cent. Over the last ve years, however, themarket share o developing countries in total world services trade increased by 5 percent-age points. In 2011, the market shares o developing countries in world services exportsand imports were 29.8 per cent and 36.3 per cent, respectively (table II.1). Developing countries thus remain net importers o services. Economies in transition and LDCs ex-perienced ast growth in their tradable services industries over the last 15 years, but theirshare in world services trade has remained almost constant because o low initial levels.Teir trade in services balance remains in decit as well.

Services sectors recovered unevenly in the wake o the global nancial crisis.High technology sectors, such as communication services and computer and inormation

services, recovered switly because these sectors are stil l in the early stages o developmentin many developing countries and stil l have signicant room or growth. ravel serviceshave also been at the core o trade in services growth worldwide. ransport has been a leading sector in Arica and Latin America.

20 World trade estimates are aggregated rom individual reporters’ quarterly balance-o-payments

statistics taken rom the IMF and Eurostat, supplemented with estimates or missing data, as well

as national sources. Quarterly gures may not add up to annual gures published elsewhere in

World Trade Organization (WTO) or UNCTAD statistical publications or online databases, owing to

statistical discrepancies.

Developing countries see

increasing market shares in

world services trade

Table II.1

Shares and rankings o top regions and countries in trade in services

Exports

Share (percentage) World rank

2007 2011 2007 2011

Regions

Developed economies 71.7 67.3 1 1

Developing economies 25.7 29.8 2 2

Transition economies 2.6 2.9 3 3

Least developed countries 0.5 0.6 4 4

Top 10 exporters

United States 14.1 14.1 1 1

United Kingdom 8.3 6.5 2 2

Germany 6.4 6.1 3 3

China 3.5 4.3 7 4

France 4.3 4.0 4 5

Japan 3.7 3.4 5 6

Spain 3.7 3.3 6 7

India 2.5 3.2 11 8




Table II.1 (cont’d)

Share (percentage) World rank

2007 2011 2007 2011

Netherlands 3.2 3.2 9 9

Singapore 2.4 3.0 12 10

Other top developing country exporters

Hong Kong SARa 2.4 2.9 13 11

Korea, Republic o 2.1 2.2 15 15

Russian Federation 1.1 1.3 25 22

Taiwan Province o China 1.0 1.1 26 24

Thailand 0.9 1.0 27 26

Macao SARa 0.4 0.9 40 27

Brazil 0.7 0.9 31 28

Turkey 0.8 0.9 29 29

Malaysia 0.8 0.8 28 32

Imports

Regions

Developed economies 66.4 60.1 1 1

Developing economies 30.4 36.3 2 2

Transition economies 3.2 3.6 3 3

Least developed countries 1.3 1.7 4 4

Top 10 importers

United States 11.3 10.5 1 1

Germany 7.9 7.1 2 2

China 4.0 5.8 5 3

United Kingdom 6.1 4.3 3 4

Japan 4.6 4.1 4 5

France 3.9 3.5 6 6

India 2.2 3.1 14 7

Netherlands 3.0 2.9 8 8

Italy 3.7 2.8 7 9

Ireland 2.9 2.8 10 10

Other top developing country importers

Singapore 2.3 2.8 13 11

Korea, Republic o 2.6 2.4 11 13

Russian Federation 1.8 2.2 17 15

Saudi Arabia 1.9 1.9 16 18

Brazil 1.1 1.9 26 19

China, Hong Kong SAR 1.3 1.4 20 21

Thailand 1.2 1.3 24 23

United Arab Emirates 1.0 1.2 28 24

Source: UNCTAD.

a Special Administrative Region o China.




International tourism

International tourism growth remains robust amid global slowdown

Despite persistent economic turbulence, international tourist arrivals expanded by 4 per cent during

the rst eight months o 2012 compared to the same period last year, reaching a record o 705 millionovernight visitors. As a result, the milestone o one billion tourists should be reached by the end o the year. While still robust, growth o international tourist arrivals slightly decelerated over the lasttwo years, rom 6.6 per cent in 2010 to 5.0 per cent in 2011.

As tourists tend to cut more on spending than on travel in dicult times, internationaltourism receipts grew more modestly by 4 per cent in 2011, but nevertheless reached a record o $1trillion. With revenues rom international passenger transport estimated at $203 billion in 2011, totaltourism receipts that registered as services exports in the balance o payments amounted to $1.2trillion in 2011.

The export value o travel and passenger transport account or 30 per cent o the world’sexports o commercial services and 5.5 per cent o overall exports o goods and services (gure A). Asa worldwide export category, tourism ranks th ater uel, chemicals, ood and automotive products.

During the rst eight months o 2012, tourist arrivals increased by 7 per cent in Asiaand the Pacic, boosted by rebounding Japanese inbound and outbound tourism as well as by thecontinued strong perormance o other major source markets in South and South-East Asia. Growtho tourist arrivals in Europe declined rom 6 per cent in 2011 to 3 per cent in 2012, with strongerperormance in Central and Eastern Europe. Stalling tourism activity in Southern and Mediterranean

Europe was partly created by the recovery o destinations in Nor th Arica, which grew by 10 per centollowing rebounding activity in Tunisia. In sub-Saharan Arica, tourist arrivals increased by 4 per cent,bringing the continental average growth rate to 6 per cent. The return o tourists to Egypt limitedthe decline o tourist arrivals in the Middle East to 1 per cent. The number o overnight visitors grewby 4 per cent in the Americas. While it expanded robustly by 6 per cent on average in Latin America,destinations in North America grew at 3 per cent, a relatively high rate or a mature subregion.

In terms o tourism expenditures abroad, demand rom both emerging and advancedeconomy source markets during the rst six to nine months o 2012 remained steady. Among the10 major source markets, spending on overseas tourism rose by 30 per cent in China, 15 per cent in

Box II.3

Source: UNWTO (estimatesbased on data rom 2010).

Note: Internationaltourism, including travel

and passenger transport.

0

10

20

30

40

50

60

70

80

W o r l d

N o r t h e r n E u r o p e

W e s t e r n E u r o p e

C e n t r a l / E a s t e r n E u .

S o u t h e r n / M e d i t e r . E u .

N o r t h - E a s t A s i a

S o u t h - E a s t A s i a

O c e a n i a

S o u t h A s i a

N o r t h A m e r i c a

C a r i b b e a n

C e n t r a l A m e r i c a

S o u t h A m e r i c a

N o r t h A f r i c a

S u b - S a h a r a n A f r i c a

M i d d l e E a s t

Percentage of total trade

Percentage of trade in services

Percentage

Figure A: Tourism as a share o trade and trade in services by subregion




the Russian Federation, but also by 9 per cent in the United States, 7 per cent in Japan, 6 per cent inCanada, 5 per cent in Germany and 4 per cent in Australia.

According to the latest survey o the World Tourism Organization (UNWTO) Panelo Experts, prospects or international tourism expansion are weakening, but remain positive.

International tourism is expected to grow by 3 per cent to 4 per cent in 2012, beore decliningslightly in 2013.

Sustainable tourism

Travel and tourism are both victim and vector o climate change. Because climate so directly denesthe length and quality o tourism seasons, aects tourism operations, and inuences environmentalconditions that both attract and deter visitors, the sector is considered to be highly climate sensitive.

The eects o climate change thereore can have a signicant impact on tourism business and desti-nations, particularly in the vulnerable small island developing States and least developed countries.

At the same time, travel and tourism help eed climate change by accounting or ap-proximately 5 per cent o global carbon dioxide (CO

2) emissions, which are the main contributor to

the greenhouse gas eect and global warming (see also box II.1).a Transport accounts or 75 per cento CO

2emissions by the tourism sector. Air travel emissions make up about 40 per cent o the total

and are expanding at an average annual rate o 3.2 per cent. While slower than the growth in the

number o air travel passengers and tourist arrivals, the trend keeps adding to CO2 emissions (gure B).

The G20 recently recognized the role o travel and tourism as “a vehicle or job creation,economic growth and development” and made the commitment to “work towards developing travelacilitation initiatives in support o job creation, quality work, poverty reduction and global growth”.b

In eorts to curb emissions in the coming decades, the tourism industry continues to de-velop mitigation and adaptation strategies. In this regard, “The uture we want”,c the outcome documento the 2012 United Nations Conerence on Sustainable Development (UNCSD, also known as “Rio+20”),emphasized the signicant contribution that well-designed and well-managed tourism can make toadvancing the three dimensions o sustainable development: economic, social and environmental.

The shit towards sustainable tourism can create jobs and reduce poverty, while alsoimproving environmental outcomes. With tourism expected to expand in the coming decades, thechallenge o cutting back emissions is even larger. Investing in the greening o tourism can reducethe costs related to energy, water and waste and enhance the value o biodiversity, ecosystems andcultural heritage, while at the same time curbing the expansion o tourism-related CO

2emissions.

Under a green growth scenario based on optimistic assumptions,d CO2

emissions generated bytourism in 2050 would only be hal compared to a business-as-usual scenario and they would havereturned to their current level ater an initial increase.

Sources: World Bank andInternational TransportForum.

a World TourismOrganization and UnitedNations EnvironmentProgramme, Climate Change

and Tourism: Responding to

Global Challenges (Madrid,World Tourism Organization,2008), available rom http://www.unwto.org/sdt/news/en/pd/climate2008.pd.

b See the G20 Los Cabos

Leaders Declaration o 19June 2012, available romhttp://www.g20.utoronto.ca/2012/2012-0619-loscabos.html.

c See General Assemblyresolution 66/288 o 27 July2012, paras. 130 and 131,available rom http://www.un.org/ga/search/view_doc.asp?symbol=%20A/RES/66/288.

d For a description o theoptimistic assumptionsand the green growthscenario, see United NationsEnvironment Programme,Green Economy Report, Part II: Investing in energyand resource eciency:

Tourism”, annex 3, availablerom http://www.unep.org/greeneconomy/Portals/88/documents/ger/11.0_

Tourism.pd.

Box II.3 (cont’d)

Figure B: CO2

emissions rom air transport, passenger carried and tourist arrivalsmove in tandem

80

90

100

110

120

130

140

150

160

170

180

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

CO2 emissions from international aviation

(Mt, 1995=100)

International tourism, number of arrivals(series starting in1995=100)

Air transport, passengers carried (1995=100)




Recovery o service activities directly aected by the global nancial crisis was

more sluggish. Financial services were the most severely aected by the global nancial

turmoil. Construction services were hit by the bursting o the housing bubble in developed

economies and transportation services growth stalled because o the weak rebound o global trade. International tourism receipts increased by 4 per cent in real terms in 2011 as

it continued to recover rom the losses incurred during the global crisis.Developing and transition economies urther improved their ranking among

the world’s top 10 exporters and importers o services during 2007-2011 (table II.1). China

moved rom the seventh to the ourth position in world exports, and rom the th to thethird position o world imports. China is a major contributor to Asian predominance (81

per cent) in total developing country services trade. In the top 10 developing countries and

economies in transition, 6 o the top exporters also rank among the top 10 importers.

Trade policy developments

The Doha RoundTe Doha Round o multilateral trade negotiations o the World rade Organization(WO), launched in November 2001, continues to be at a complete stalemate with no

clear prospects or the oreseeable uture. As requested at the Eighth WO Ministerial

Conerence in December 2011, participants have been exploring the possibility o ocusing

on a limited number o negotiating areas as part o a l ikely “smaller package” to complete

negotiations, probably by the time o the next WO Ministerial Conerence in Bali,Indonesia, at the end o 2013. Te G20 Summit at Los Cabos in June 2012 also supported

such a partial approach.

A smaller package could potential ly reect results o negotiations on trade

acilitation—ocused on strengthening multilateral rules and procedures to streamline

the movement, release and clearance o goods at the border and in transit—where sometangible progress has been achieved. However, progress in negotiations is still challenged

by many developing countries or whom trade acilitation eorts entail high implementa-

tion costs without any o their key trade and development concerns being addressed. An

outcome on trade acilitation would thereore also require agreement on support measures,

including nancial and technical assistance, in order or developing countries to meetimplementation costs. Such agreement is yet to be negotiated.

A smaller package would also cover results o negotiations on a plurilateral

International Services Agreement (ISA), which has been contemplated by a group o about

20 countries. Some o them intend to negotiate the ISA as a closed agreement in which

benets will not be extended to all WO members on a most avoured nation (MFN)basis. Although still in a consultation phase, such an approach, i implemented, would

mean a critical departure rom the “single undertaking” concept o the WO, involving risks or the multilateral trading system based on the unconditional MFN treatment.

Tereore, completing the Round with a smaller package will be difcult. o

be balanced and attractive or developing countries, LDCs in particular, any such package would need to be supplemented by meaningul provisions that are o interest to them, such

as giving ull duty-ree and quota-ree market access on a lasting basis or all LDCs, and

elimination o developed-country subsidies on agricultural exports and cotton production.

Even negotiations or

a smaller Doha Round

package remain in a

stalemate




Another important obstacle to the negotiation process is the perception—per-haps not wholly justied but yet increasingly widespread—that the Doha Round would beabout an outdated set o twentieth century issues. As such, it would contribute too little,too late to the aspirations o globalizing businesses today and be inadequate to provide theenabling policy environment needed to support the inclusive and sustainable growth and

development pathways called or by the G20 and numerous United Nations summits andhigh level conerences, including the Conerence on Sustainable Development (Rio+20)and UNCAD XIII.

Te ailure to complete the Doha Round is not only detrimental to the cred-ibility o the multilateral trading system, but is also deterring progress in building con-sensus on other complex multilateral issues, such as the sustainable development agenda.More generally, the incapacity to reach comprehensive and balanced results in the Roundor more than a decade reects wider global governance decits and eventually may callmultilateralism itsel into question as the preerred approach to solving global issues.

Apart rom trade negotiations, there were several trade policy developments,mostly related to the accessions o countries still outside the WO, including Montenegro,Samoa and Vanuatu. Te accession o the Russian Federation on 22 August 2012 marked the

completion o an 18-year-long negotiating process. With Russia’s membership, the WOnow covers approximately 97 per cent o world trade and is closer to universa l membership.Te Russian Federation took on an array o commitments and obligations, ranging rombinding import taris on agricultural and manuactured goods below currently appliedrates to improved market access or oreign services providers in a number o sectors, such astelecommunications, transportation, nancial and distribution services.

In general, Russia’s accession package oers new trade opportunities or WOmembers, particularly developing countries. It also contains an extensive set o systemicobligations serving as a multilateral basis or Russia’s urther integration into the worldeconomy. On the other hand, the eects o WO membership on Russia’s domestic econ-omy are not straightorward, particularly with regards to agriculture and several industrialsectors, and were subject to an intensive but inconclusive internal discussion prior to the

ratication o the accession terms (see box IV.1 in chapter IV).New guidelines on accessions o LDCs to the WO were agreed to in July

2012. Tese guidelines are expected to streamline and acilitate accession o LDCs by oering them some additional policy space and exibility. For example, acceding LDCs

will be required to bind all their agricultural tari lines at an overall average rate o 50 percent, and 95 per cent o their non-agricultural tari lines at an overall average rate o 35per cent, while 5 per cent o their industrial tari lines could be let unbound.

Preerential trade agreements

Against the deadlock in the Doha Round, the uncoordinated process o negotiating pre-

erential bilateral and regional trade agreements (RAs) has gained urther momentum. According to recent WO estimates, there are now almost 400 preerential trade agree-ments in orce, with each WO member belonging, on average, to 13 separate agree-ments. Te expanding number o such agreements urther adds to an already complex system o trade preerences with oten substantially dierent regulatory rameworks acrossagreements. Despite expected overall benets to their parties, the eects o RAs in regardto trade relationships with third countries are oten less positive. One issue o particularimportance or small- and medium-sized enterprises is that the ragmentation o trade

The Russian Federation

joins the WTO

New guidelines acilitate

accession o LDCs to

the WTO

Fragmentation o trade

rules undermines the

consistency o themultilateral trading system




rules brought by RAs has the eect o increasing compliance costs or their participants.Multinational corporations (MNCs), by contrast, are in a better position to handle andexploit the regulatory maze. In more general terms, preerential trade agreements have alsohad the eect o weakening the multilateral trading system by including “WO-plus” and“WO-extra” rules with their own dispute settlement mechanisms.

Fragmentation o trade rules and regulations is more evident in regardto North-South agreements. While RAs comprised o high-income markets are largely related to “deep” integration, oten based on sophisticated regulatory rameworks o majordeveloped markets, South-South RAs more oten reect the dynamics and priorities o regional integration among developing countries. Tey are still ocused on traditionalmarket access issues like the reduction o taris, which remain relatively higher as com-pared to those in North-South trade (box II.4). Deeper integration is still an open issue inmany South-South RAs as it will require additional rule-making in the trade regulatory ramework, especially with regard to non-tari measures.

Te rans-Pacic Partnership (PP) is probably the most actively negotiatedNorth-South RA today. Te PP is being negotiated among 11 developed and develop-ing countries21 and is presented as a comprehensive and high-standard RA aimed at

almost ull liberalization o trade in goods and services and establishing commitmentsthat reach beyond multilateral rules under the WO. It is also viewed by some as analternative to the stalled Doha Round as a twenty-rst century agreement that addressesnew and cross-cutting issues reecting the needs o an increasingly globalized economy and evolving global production and supply chains.

Apart rom market access in goods and services, PP negotiations are ocusedon setting rules that extend beyond those in the WO and cover such areas as intel-lectual property rights, services, government procurement, investment, rules o origin,competition policy, labour and environmental standards. In addition, or the rst time,rule-making is sought in completely new areas like state-owned enterprises, regulatory coherence and supply chain competitiveness.

One o the most controversial issues that the PP negotiations are trying to

address relates to the scope and depth o provisions on labour standards and worker rights. According to some reports, PP would require its participants to adopt and enorce theour internationally accepted labour rights that are contained in the 1998 InternationalLabour Organization (ILO) Declaration on Fundamental Principles and Rights at Work:the reedom o association and the eective recognition o the right to collective bargain-ing; the elimination o all orms o compulsory or orced labour; the eective abolition o child labour; and the elimination o discrimination in respect o employment and occupa-tion. Tese provisions would be enorceable under the PP dispute settlement mechanism,

while violations could be subject to potential trade sanctions. Attempts to enorce labour standards through trade agreements have a long

history. Tis linkage has traditionally been strongly opposed by many developing coun-tries on the grounds that it may serve to articially increase production costs o domestic

businesses and operations o MNCs, thus undermining their comparative advantage.However, at the same time they do strengthen human rights o workers in developing countries and may help increase the labour share o national income, which is exceedingly low in many o these countries. Providing these rights would appear to be consistent withthe internationally agreed upon goal o promoting decent work. Nevertheless, developing

21 These are Australia, Brunei Darussalam, Canada, Chile, Malaysia, Mexico, New Zealand, Peru,

Singapore, United States, and Viet Nam. Thailand will also join TPP trade talks.

Twenty-rst century

agreements increasingly

address the aspirations o

globalizing businesses

Provisions on labour

standards remaincontroversial




Import tarifs and South-South trade

Many developing countries have substantially reduced eective trade taris starting in the 1990s.

The general trend o lowering taris in developing countries is likely to continue, especially with re-

gard to South-South trade (both intraregional and interregional trade). In 2011, imports by developed

countries were subject to an average tari o about 1.2 per cent (see table). Imports entering develop-

ing countries and economies in transition were subject to an average tari ranging rom about 2.2

per cent or the economies in transition to about 7.8 per cent or developing countries in South Asia.

Taris still represent an important obstacle to South-South trade, especially in regions where the

regional integration process has been slower. Intraregional trade aces relatively low taris within the

economies in transition, Latin America and the Caribbean and East Asia largely owing to the existing

preerential trade agreements. On the other hand, taris are still an important policy issue or most o

the other regions o Asia as well as or Arica. The average tari applied to intraregional trade in South

Asia is about 4 per cent, while that o sub-Saharan Arica is 3.5 per cent. Because very ew South-

South RTAs span dierent developing country regions, interregional trade is generally subject to

higher taris than intraregional trade. Thus, higher taris are imposed by countries in South Asia and

sub-Saharan Arica (especially on products originating rom East Asia) and by countries in the regionscomprising Northern Arica, Western Asia and Central Asia (especially versus products originating

rom Latin America and the Caribbean).

Box II.4

Source: UNCTAD TRAINS database.

Eective trade-weighted taris by main regions and country groupings in 2011

(Changes rom 2005 through 2011 are indicated in parentheses)

Percentage

Importer

Exporting region

High-income

countriesEconomies

in t ransi tion East A si a Sout h Asia

Northern Arica,

Western Asia and

Central Asia

Latin

Americaand the

Caribbean

Sub-Saharan

Arica

Averagetarif

imposed on imports

High-income countries0.9 0.4 2.2 2.8 0.5 0.7 0.8 1.2

-(0.1) -(0.4) -(0.3) -(0.5) -(0.2) -(0.4) (0.2) -(0.1)

Economies in transition2.3 0.7 4.1 4.6 2.8 2.0 0.5 2.2

(0.0) -(1.3) -(0.4) -(0.9) (0.0) -(0.7) -(1.4) -(0.3)

East Asia4.6 2.4 2.1 1.8 0.5 1.5 0.4 3.6

-(0.7) -(2.0) -(2.0) -(1.2) -(0.6) -(1.5) -(1.7) -(1.2)

South Asia7.9 7.0 13.1 4.0 2.5 2.1 3.3 7.8

-(5.2) -(6.8) -(5.0) -(5.9) -(9.0) -(19.2) -(10.6) -(6.1)

Northern Arica, WesternAsia and Central Asia

4.6 4.7 7.1 5.0 3.5 9.8 3.7 5.1

-(0.3) (1.4) -(1.5) -(0.2) -(0.3) -(0.4) -(1.3) -(0.1)

Latin Americaand the Caribbean

4.0 3.2 7.7 7.6 4.0 1.1 1.3 4.0

-(0.2) -(1.7) -(0.9) -(2.3) (0.9) -(0.8) -(0.9) -(0.2)

Sub-Saharan Arica6.5 4.3 10.5 6.3 8.4 8.7 3.5 6.9

-(0.1) -(2.3) -(1.5) -(0.6) (0.3) -(1.0) -(1.0) -(0.2)

Average tarif aced by exports

2.1 1.0 3.2 3.2 1.2 1.2 1.3

-(0.1) -(0.6) -(0.1) -(0.8) -(0.3) -(0.5) -(0.5)




countries’ market access could be made less predictable under the threat o trade sanc-tions. It is oten alleged that the linkage between trade and labour standards is a disguiseor protectionism in developed countries. However, it is also a lleged that the concern ordeveloping countries’ comparative advantage is a disguise or protecting the economicrents o the elites in the developing economies. Recently, provisions related to the enorce-

ment o labour standards have been included in several bilateral preerential North-Southagreements, reecting developed countries’ negotiating priorities that mostly stem romdomestic concerns about losing jobs to low-wage countries.

Protectionist pressures

Te joint WO-OECD-UNCAD monitoring report on G20 trade and investmentmeasures o 31 October 2012 showed a certain slowdown o trade-restrictive measures

with 71 new import restrictions taken in mid-May through mid-October o 2012, a-ecting around 0.4 per cent o total G20 merchandise imports, or 0.3 per cent o worldimports. Tese involved mostly non-tari measures, including trade remedy actions (likeanti-dumping and countervailing measures), import licensing and customs controls. Tere

are growing concerns about the prolieration o non-tari measures implemented throughtechnical requirements, like standards and sanitary and phytosanitary regulations. Tesectors most heavily aected in terms o trade coverage were electrical machinery, mineraluels and oils, ertilizers, chemical products, machinery and mechanical appliances, andplastics.22 On the other hand, the number o new export restrictions had declined signi-cantly rom that reported in previous monitoring reports.

Te trend o slow removal o existing measures continued, in compliance withG20 commitments. Yet, only 21 per cent o trade restrictions introduced since the start o the crisis in October 2008 have been eliminated. Tose measures related to the termina-tion o trade remedy actions and phasing out temporary tari increases. Overall, the tradecoverage o the remaining restrictive measures put in place beginning in October 2008 isabout 3.5 per cent o world merchandise imports.23

With government budget cuts, persistent high unemployment and expectedslowing global output growth, the threat o protectionist pressures is likely to increase.Tis trend is also supported by what is appearing as an escalation o trade rictions anddisputes between major trading countries. o a large extent, such disputes are uelled by traditional bilateral trade imbalance concerns and accusations o unair trade practicesthat are linked to job losses in importing countries. However, these traditional argumentsneither recognize the growing importance o global value and supply chains, which areincreasingly shaping the ows o international trade and oreign direct investment, nor dothey show awareness o the related environmental challenges. In this regard, the recogni-tion o the role o such chains in ostering economic growth, employment and developmentby Leaders at the G20 Summit at Los Cabos is signicant. Te G20 also emphasized the

22 It was estimated that i the trade restrictive measures were implemented in all advancedeconomies, the developing economies in Asia and the Pacic could experience an export loss

o over $27 billion. In this case, least developed countries, land-locked developing countries and

small island developing States could ace a signicant contraction in their exports to the advanced

economies as compared to the baseline scenario. See Sudip Ranjan Basu and others, “Euro zone

debt crisis: scenario analysis and implications or developing Asia-Pacic”, MPDD Working paper,

No. WP/12/03 (UNCTAD, Macroeconomic Policy and Development Division).

23 See Organization or Economic Cooperation and Development (OECD), UNCTAD and WTO,

“Reports on G20 Trade and Investment Measures (mid-May to mid-October 2012)”, 31 October

2012, available rom http://www.oecd.org/da/internationalinvestment/8thG20report.pd.

Existing trade restrictions

are removed, but slowly

The G20 recognizesthe role o global value

chains, but unchecked

growth o intrarm

trade is environmentally

suboptimal




need to enhance the part icipation o developing countries in such chains. Measuring theprecise contribution o global va lue chains to growth o world trade and output remainsa challenge (box II.5).24 Tis also hampers assessment o environmental implications o expanding trade and production through global value chains (see box II.1). Uncheckedgrowth o trade in intermediate goods and intrarm trade is environmentally detrimental,

inter alia, because reight transport is a major contributor to global CO2 emissions and,hence, to climate change. Te prevailing sectoral policy approach to climate change miti-gation urther hinders a precise assessment o CO

2emissions along global value chains.

Te rapid growth o global supply chains will require a dierent, more integral approach i policymakers are to adequately identiy and address trade-os between the economic andenvironmental costs and benets associated with international trade.

24 See the G20 Los Cabos Summit Leaders Declaration o 19 June 2012, para. 29: “We value thediscussion held by our Trade Ministers in Puerto Vallarta on the relevance o regional and global

value chains to world trade, recognizing their role in ostering economic growth, employment and

development and emphasizing the need to enhance the participation o developing countries

in such value chains. We encourage a deepening o these discussions in the WTO, UNCTAD and

OECD within their respective mandates, and we call on them to accelerate their work on analyzing

the unctioning o global value chains and their relationship with trade and investment ows,

development and jobs, as well as on how to measure trade ows, to better understand how our

actions aect our countries and others, and to report on progress under Russia’s Presidency.”

Available rom http://www.g20.utoronto.ca/2012/2012-0619-loscabos.html.

Measuring trade in value added

Recently, economists and statisticians have been paying increasing attention to measuring the valueadded o international trade and the implications or economic analysis.a Conventional international

trade statistics record trade ows between countries on the basis o the gross value o traded goodsand services. However, as a result o the rapid expansion o global production chains, an exportednal product usually contains a signicant share o imported intermediate goods, such as parts andcomponents, which may have crossed borders many times. Hence, conventional trade statistics likelyoverestimate the true contribution o international trade ows to economic activity. An iPhone ex-ported rom China to the United States, or instance, is adding $200 to the record o Chinese exports,whereas only about $10 o value added is generated in China where it is assembled. The remainingvalue stems rom immediate parts and components imported rom Japan, the Republic o Korea andother countries.

In general, along with the increasing geographical ragmentation o global manuac-turing processes, intrarm trade and trade in intermediate goods have been growing rapidly, ac-counting or nearly 50 per cent o total international merchandise trade. Conventional trade statisticsmay thus provide an inaccurate picture o actual trade linkages between countries and be a highlyimperect guide or trade, macroeconomic and development policies.

In response to these challenges, work coordinated through the United Nations StatisticalCommission and various research institutes, as well a WTO-OECD joint initiative, b are under way toormulate a new metric that identies trade in value added. Under this approach, trade ows acrosscountries are measured on a net basis, that is, obtaining the domestically generated value addedo exported goods by subtracting the value o imported intermediates rom the total export value.

Measuring trade in terms o value added provides a substantially dierent picture o bilateral trade patterns. For instance, by conventional measures, China records a large bilateral tradesurplus with the United States o around $200 billion per year. In value added terms, however, China’ssurplus with the United States would be 40 per cent smaller. In contrast, the bilateral trade surplus o the Republic o Korea and Japan with the United States would be about 40 per cent larger, becausethose two countries are large exporters o intermediate products. Furthermore, China’s trade surpluswith Japan would turn into a decit.

Box II.5

a For example, World TradeOrganization and Instituteo Developing Economies-

JETRO, “Trade patterns andglobal value chains in EastAsia: rom trade in goodsto trade in tasks” (Geneva,2011), available rom http://www.wto.org/english/res_e/booksp_e/stat_tradepat_globvalchains_e.pd; and Robert Koopman,Zhi Wang, and Shang-JinWei, “Estimating domesticvalue added in exportswhen processing tradeis prevalent,” Journal o

Development Economics,orthcoming. Available rom

http://www.ecb.europa.eu/home/pd/research/compnet/DEVEC_1670.pd?57a5265ab967467a2ab0464575d3.

b See OECD, “Measuring Trade in Value-Added:An OECD-WTO jointinitiative”, available romhttp://www.oecd.org/sti/industryandglobalisation/measuringtradeinvalue-addedanoecd-wtojointinitiative.htm.




Measuring bilateral trade in terms o value added would better identiy the degree towhich countries are connected through trade. I charted out through the ull global value chain, suchmeasuring would provide a more accurate basis to assess the transmission o changes in economicconditions rom one country to another that occurs through trade channels. I t would potentially also

alter assessments o policy spillover eects, such as exchange rate adjustments. Many large-scaleeconometric models o the world economy, such as the United Nations World Economic ForecastingModel, contain a bilateral trade matrix linking individual country models together. The parameterso this matrix are key or the analysis o policy studies and signicantly inuence outcomes o thealternative scenarios simulated using the model. I this matrix is re-estimated using new data on tradein value added, the resulting policy analysis and model simulations could be signicantly dierent,altering our understanding o the spillover eects o national policies.

New trade statistics would also aect other important measures guiding macroeco-nomic policymaking. The real eective exchange rate (REER), or instance, is used as a proxy measureo international competitiveness. It is measured using bilateral trade shares as weights or shits in thevalue o the national currency against that o major trading partners. Using shares o trade in valueadded as weights could thus shed a dierent light on a country’s competitiveness with its varioustrading partners, especially i its exports contain signicant amounts o imported inputs. By the sametoken, the revealed comparative advantage o individual countries, as measured by the share o a

sector in the country’s total exports relative to the world average share o this sector, would also bemore accurately estimated.

However, because the new trade statistics only redistributes net bilateral trade ows byadjusting both the exports and imports o individual trading partners, each country’s overall current-account balance and, thus, global imbalances would remain unchanged. Nonetheless, it would notbe immaterial to policymakers, however, as the eects o rebalancing policy actions can be quantita-tively dierent rom that anticipated when using conventional trade statistics. For example, a policyto stimulate consumption in China, along with a revaluation o the renminbi against the United Statesdollar, would be expected to lead to a substantial reduction in the current-account decit o theUnited States on the basis o the large bilateral trade imbalance between these two economies (asmeasured conventionally). Based on the new approach, however, China has a smaller bilateral tradesurplus with the United States and a decit instead o a surplus with Japan. So the same policy actionwould be expected to lead to a much more muted narrowing o the trade decit o the United States

with China, while it would widen China’s decit with Japan.

Box II.5 (cont’d)



67

Chapter 3

International nance ordevelopment

Tere is increasing awareness that substantial nancing will be needed to meet global de-velopment challenges, such as mitigating the eects o climate change and achieving theMillennium Development Goals (MDGs). Given the scope o the nancing needs, both pri-vate and public sector unds will be necessary, underscoring the importance o having soundnancial sectors capable o providing stable long-term nancing or sustainable development.

Yet, our years ater the crisis began, the international nancial system contin-ues to be plagued by vulnerabilities. Te sovereign debt crisis in Europe and the unevenglobal recovery have led to heightened risk aversion and increased volatility o privatecapital ows (see chapter I). Deleveraging o nancial institutions continues, particularly in Europe, where many banks hold large amounts o sovereign bonds rom debt-distressedcountries on their balance sheets. In recipient countries, ows o ofcial developmentassistance (ODA) also tend to be highly volatile. In 2011, total ODA ows, net o debtcancellation, ell in real terms or the rst time since 1997, owing to greater scal austerity and sovereign debt problems in developed countries. At the same time, institutional inves-tors appear to have become increasingly oriented to the short term, with ewer resourcesdedicated to long-term investments since the crisis.

Te international community has taken steps to address some o these vulner-abilities by strengthening the banking system through regulatory reorms. Although thesereorms represent important steps orward, they are being phased in only gradually, arenot comprehensive, and are not adequately ocused on the underlying goal o the nancialsystem to eectively allocate credit or long-term sustainable development. Tis chapterdiscusses the underlying risks in the international nancial system and its possible impact

on nancing or sustainable development.

Trends in private capital and other private ows

In 2012, net international private capital ows to developing countries and economiesin transition ell by more than 50 per cent, rom $425 billion in 2011 to an estimated$206 billion in 2012 (table III.1). More broadly, private capital ows have been highly volatile since 2008. Net private capital inows collapsed during the crisis, surged in 2010to approximately $525 billion, and declined again in the latter part o 2011. While somestability seemed to return to international currency and capital markets in early 2012, new turmoil suraced later in the year.

Tis heightened volatility can be attributed to several actors. An increase inglobal risk aversion, caused in part by growing ears about the sustainability o publicnances in Europe, is leading portolio investors to a general ight to saety. In addition,many European banks continue to ace deleveraging pressures, which has led to cutbacksin lending to developing and transition economies. Tere is a risk that deleveraging pres-sures will worsen i the European crisis accelerates, which could in turn trigger signicantportolio outows rom emerging economies. A tightening in lending standards by inter-national banks in response to Basel III might also orce urther deleveraging, although

Four years ater the crisis,

the global nancial system

remains volatile

International private

capital ows to emerging

and developing countries

remain extremely volatile




such an eect is likely to be rather muted because o the long phase-in period o someo its elements. In addition, signs o an economic slowdown in some leading developing economies (like Brazil, China and India) have reduced ows to these countries.

At the same time, other actors have encouraged increased inows into devel-oping countries. Weaknesses in developed economies have led some investors to diversiy

out o troubled advanced economy markets and into developing country markets.1

Inaddition, extremely high global liquidity brought on by the exceptional monetary policy measures imposed in response to the crisis—such as the third round o quantitative easing in the United States—has depressed yields in some developed countries to close to zero.

As a result, a search or better yields has led to an increase in short-term investments incountries with higher interest rates (oten reerred to as the carry trade).

Tis diverse set o pressures has created increased volatility and impacted di-erent types o ows in dierent ways. Overall, given that much o the positive inowsare driven by a search or short-term yields resulting rom low interest rates in developedcountries, xed-income investments have experienced more positive trends than equity portolio investment and oreign direct investment (FDI).

1 International Monetary Fund (IMF), Global Financial Stability Report: Restoring Condence and

Progressing on Reorms, October 2012.

Table III.1

Net nancial ows to developing countries and economies in transition, 1999-2013

Average annual ow

2009 2010 2011 2012a 2013b1999-2002

2003-2008

Developing countries

Net private capital ows 59.1 200.2 450.2 525.4 424.7 206.1 300.0

Net direct investment 151.9 251.7 253.1 332.1 435.9 374.4 371.7

Net portolio investmentc -31.7 -39.5 36.6 91.0 33.7 50.1 59.2

Other net investmentd -61.1 -12.0 160.5 102.4 -44.8 -218.4 -130.9

Net ocial ows -9.3 -88.6 8.1 32.6 -94.3 -36.4 -64.7 Total net ows 49.8 111.6 458.3 558.0 330.4 169.7 235.3

Change in reservese -121.7 -630.2 -706.5 -914.8 -777.1 -558.8 -636.9

Arica



Net portolio investmentc -1.9 -4.9 -15.7 1.8 -11.0 2.6 6.8

Other net investmentd -5.8 -10.9 -2.2 -36.5 -20.1 -11.0 -11.9

Net ocial ows -1.4 -8.7 20.1 30.0 22.1 27.1 28.3

Total net ows 5.9 7.9 51.3 29.9 36.5 63.3 75.6

Change in reservese -8.9 -58.5 1.2 -27.4 -32.8 -35.9 -43.1

East and South Asia



Net portolio investmentc -17.9 -31.3 27.2 50.9 -7.1 -10.3 2.5

Other net investmentd -27.5 7.5 194.5 143.0 -8.6 -150.2 -65.9

Net ocial ows -1.5 -6.5 19.3 15.8 9.2 2.0 3.2

Total net ows 15.5 93.1 320.4 403.0 218.0 12.6 97.7




69International inance or development

Portolio ows and cross-border bank lending

Te recent decline in international capital inows has been mainly on account o a collapsein cross-border interbank ows (reerenced under “net private ows” in table III.1), as wellas a drop in equity portolio ows.2 Although commercial bank lending to developing countries had been ollowing a path o gradual recovery in many countries, deleveraging pressures continue to be elt, especially rom European banks. Te impact o declining cross-border bank lending has been greatest in emerging Europe and Central Asia, which

2 Bank or International Settlements (BIS), “International Banking and Financial Market

Developments”, BIS Quarterly Review, June 2012.

Emerging Europe and

Central Asia are most

aected by declining cross-

border bank lending…

Table III.1 (cont’d)

Average annual ow

2009 2010 2011 2012a 2013b1999

-20022003

-2008

Western Asia

Net private capital ows -5.8 53.3 96.0 74.6 52.7 45.1 55.0


Net portolio investmentc -5.2 6.3 42.2 39.2 37.8 56.1 47.5

Other net investmentd -6.9 11.4 -2.3 5.8 -24.2 -48.8 -34.5

Net ocial ows -11.5 -67.3 -66.8 -56.5 -153.9 -126.1 -149.7

Total net ows -17.3 -13.9 29.1 18.2 -101.2 -81.0 -94.7

Change in reservese -7.5 -91.1 6.5 -92.8 -99.4 -198.6 -166.1

Latin America and the Caribbean



Net portolio investmentc -6.7 -9.6 -17.0 -1.0 14.0 1.9 2.5

Other net investmentd -21.0 -20.0 -29.5 -10.0 8.0 -8.4 -18.6Net ocial ows 5.0 -6.1 35.5 43.2 28.3 60.6 53.6

Total net ows 45.7 24.6 57.5 106.9 177.1 174.8 156.7


Economies in transition

Net private capital ows -2.6 38.8 -49.8 -19.9 -56.2 -55.5 -31.8


Net portolio investmentc 0.8 0.6 -10.2 9.6 -28.9 -6.5 -3.8

Other net investmentd -9.3 9.0 -62.7 -42.5 -47.1 -58.9 -41.8

Net ocial ows -3.5 -14.2 46.4 1.6 -17.8 -21.7 -27.8

Total net ows -6.2 24.6 -3.4 -18.3 -74.0 -77.2 -59.6


Source: International Monetary Fund (IMF), World Economic Outlook database, October 2012.

Note: The composition o developing countries above is based on the country classication located in thestatistical annex, which diers rom the classication used in the World Economic Outlook. See also ootnote 5 inChapter I.

a Preliminary.

b Forecasts.

c Including portolio debt and equity investment.

d Including short- and long-term bank lending, and possibly including some ocial ows owing to datalimitations.

e Negative values denote increases in reserves.




have the most direct exposures to banks in the European Union (EU).3 Tere is evidencethat deleveraging in the European banking sector has especially aected trade nancing,4

which in many countries comprises a large share o short-term borrowing. rade-orientedsmall- and medium-sized enterprises (SMEs) rom lower-income countries, in particular,have aced a sharp shortall in unding.

In contrast, developing country xed-income instruments have become moreattractive to investors in recent months. Sovereign bond spreads on emerging market ex-ternal debt tightened in the second hal o 2012 rom over 400 basis points at the begin-ning o June to about 290 basis points in late-November, ater widening or much o 2011,indicating an increase in demand (see chapter I, gure I.10). Similarly, more capital hasmoved towards domestic bond markets o developing countries.5 Tere is also evidencethat investors chose to hedge currency risk selectively rather than withdraw rom the de-veloping country bond markets—which limit portolio bond outows during spells o heightened risk aversion6—although this could reect illiquidity in some domestic bondmarkets, not sustained demand or the products.

Foreign direct investment

FDI tends to be more stable than portolio investment and bank lending (although thevolatility o FDI ows increased somewhat in recent years, as discussed below). FDI re-mains a major component o private capital ows to developing countries. While FDIrose sharply in 2011, reaching approximately $436 billion, it ell in the latter part o theyear, as well as in 2012. Furthermore, FDI remains concentrated in a ew regions andcountries. Most FDI owing to developing countries is going to Asia and Latin America.Only 10 per cent o inward FDI goes to Arica. Furthermore, the distribution o FDIows within Arica remains uneven, with more than 80 per cent o the capital going to natural resource-rich economies. Nonetheless, FDI comprises the dominant share o private capital ows to LDCs.

Outward FDI rom developing and transition economies has become increas-

ingly signicant, with a large proportion directed towards other developing and transitioneconomies. However, their share in global FDI outows declined rom 31 per cent in 2010to 26 per cent in 2011, mainly owing to a signicant decline in outward FDI rom Latin

America and the Caribbean as oreign afliates o some Latin American transnationalcompanies repaid loans to their parent rms. Nevertheless, the overall levels o FDI ow-ing rom developing and transition economies remained high rom a historical perspective.

Remittances

Remittances rom workers abroad have continued increasing and or many developing countries have become a critical source o oreign-exchange earnings. Income rom worker

remittances as recorded in balance-o-payments statistics totalled $406 billion in 2012,representing a year-on-year increase o about 6.5 per cent.7 For some countries, it is a

3 World Bank, Global Economic Prospects: Maintaining progress amid turmoil , January 2012.

4 This could be partly owing to Basel III regulations on trade nance, as may be inerred rom data

presented in World Bank, Global Economic Prospects: Managing growth in a volatile world ,

June 2012, Finance annex, pp. 43-51.

5 IMF, Global Financial Stability Report, op. cit.

6 World Bank, Global Economic Prospects: Managing growth in a volatile world , op. cit.

7 The real size o remittances, though, is probably larger, given that many remittances are channelled

through inormal mechanisms that are not recorded.

...with trade nance in

low-income countries

particularly impacted

FDI ell in 2012

Remittances are estimated

to increase by 6.5 per cent

in 2012




main source o income. For instance, remittances were as high as 47 per cent o GDPin ajikistan, 27 per cent in Lesotho, and around 20 per cent o gross domestic product(GDP) in the Republic o Moldova, Samoa and Kosovo.8

Te total volume o remittance ows to developing countries moderated somewhat during the initial years o the global economic and nancial crisis, but the decline

was not as sharp as in the case o private capital inows. In general, remittance owstend to be less volatile than most orms o cross-border nancial ows. Yet, the economicslowdown and rise in unemployment in Europe disproportionately aects migrant work-ers, especially in Italy and Spain. Tis in turn has had a strongly adverse impact on remit-tance ows to Eastern European countries, such as Bosnia and Herzegovina, Poland andRomania, as well as countries in the Middle East and North Arica, 9 and some in Latin

America, like Ecuador and, to a lesser extent, Colombia.Te total volume o worker remittance ows to developing countries was

more than three times the size o ODA. Remittances should not be seen as an immedi-ate substitute or ODA, however. ODA represents nancial ows in support o interna-tional development cooperation and is mainly channelled through government budgets.Remittances ow directly to private households, who mainly use the additional income

or consumption. A number o Governments and international organizations have takeninitiatives providing incentives or using remittance income or investment purposes. Forexample, the Multilateral Investment Fund o the Inter-American Development Bank o-ers supplementary grants i remittances are channelled towards investments in housing and other orms o capital ormation, education, entrepreneurship training, and researchand knowledge dissemination. Tis way, remittances can become an important and rela-tively stable orm or nancing development.

Shortening maturities

Te high volatility o most types o cross-border capital ows is indicative o the short-term

behaviour o investors. Whereas greeneld direct investment tends to have longer-terminvestment horizons, and be attracted by actors such as high growth rates, cheap assetprices, rule o law and strong macroeconomic undamentals, most orms o portolio in-vestment and cross-border interbank lending tend to be attracted to developing countriesbecause o high relative short-term interest rates, which oten outweigh longer-term unda-mentals. A range o incentives drive this investor behaviour, including the compensationpackages o hedge und managers and other investment managers, who are paid annually,based on short-term perormance, as well as nancial management strategies that ocuson the short-term share price.10 In addition, risk models used by the nancial industry (such as the “value at risk” model) exacerbate the problem, since they are generally basedon short-term indicators and do not consider longer-term actors like tail risks (that is, therisk o rare but costly events).

Te recent crisis, however, appears to have strengthened this short-term behav-iour. Te sum o proessionally managed assets across the globe totalled about $65 trillionin 2009, o which about $27 trillion was owned by institutional investors such as pension

8 World Bank, “Remittances to developing countries will surpass $400 billion in 2012”, Migration

and Development Brie, No. 19 (20 November 2012).

9 Ibid.

10 Joseph E. Stiglitz, “The nancial crisis o 2007-8 and its macroeconomic consequences”, in Time or

a Visible Hand , Stephany Grifth-Jones, José Antonio Ocampo and Joseph E. Stiglitz, eds. (Oxord:

Oxord University Press, 2010).

The global nancial crisis

has increased short-term

behaviour o investors




unds. Constraints aced by these investors allowed only a quarter o their assets to beused or long-term ventures.11 According to analysis undertaken by the World EconomicForum (WEF), a number o institutional investors experienced difculty renancing li-abilities during the crisis, which led them to reassess the extent to which they shouldundertake long-term investments. Tis, in combination with other actors—including a

move towards “mark-to-market” accounting, which requires that long-term illiquid port-olios be evaluated relative to a public market benchmark, stricter capital requirementsand the existing structure o sta evaluation, compensation schemes and internal decision-making—is argued to have restricted the proportion o assets employed by these inves-tors or long-term investing.12 Te WEF study oresees a continuing decline in long-terminvesting, which will only be partly oset by increasing activity o other investors, suchas endowments and oundations, which were also under stress ollowing margin calls onlevered investment during the nancial crisis.

In light o these trends, there may be a need or policymakers to reconsider theimpact o regulatory actions, including mark-to-market accounting, on long-term invest-ment decisions. It also seems important to have a regulatory ramework that better man-ages global l iquidity and is conducive to long-term investments, as discussed below. At the

same time, institutional investors should develop appropriate liquidity management tools,perormance measurement and sta evaluation/compensation mechanisms that providegreater incentives to taking a longer investment horizon.

A urther concern is that FDI is becoming more short term-oriented and thatits changing composition could be making it more volatile.13 Te shit in the compositiono FDI rom equity to debt components has made it easier or investors to move resourc-es between host and home countries.14 Where a signicant portion o FDI comprisesintracompany debt, as opposed to greeneld direct investments, the parent company canrecall this debt on short notice. In this respect, the proportion o short-term and volatileows in FDI has increased.15 Part o the growth in FDI ows during the past two yearsmay have been made or the purpose o short-term gains. It is important that policymak-ers are cognizant o the growing proportion o short-term investments contained within

FDI, which could reverse more quickly than expected in an uncertain economic andnancial climate.

Management o volatile cross-border capital ows

Te volatility associated with short-term capital ows has given greater attention to theissue o how countries should manage cross-border risks. Capital account management hasgained greater acceptance as a prudent policy measure by the international community.

11 World Economic Forum, “Measurement, governance and long-term investing”, available rom

http://www3.weorum.org/docs/WEF_IV_MeasurementGovernanceLongtermInvesting_

Report_2012.pd.

12 World Economic Forum, “The uture o long-term investing”, available rom http://www3.weorum.org/docs/WEF_FutureLongTermInvesting_Report_2011.pd.

13 United Nations Conerence on Trade and Development (UNC TAD), World Investment Report 2011:

Non-equity Modes o International Production and Development (United Nations publication,

Sales No. E.11.II.D.2).

14 Jonathan D. Ostry and others, “Managing capital inows: what tools to use”, IMF Sta Discussion

Note, No. SDN11/06 (Washington, D.C., April 2011).

15 UNCTAD, World Investment Report 2011, op. cit.

Even FDI shows signs o

becoming increasingly

short-term oriented

Macroprudential measures

and capital account

management have gained

importance




Indeed, over the past several years a number o developing countries (including Brazil,Indonesia, Peru, the Republic o Korea and Tailand) have introduced capital-accountregulatory measures to contain volatile short-term capital ows, as reported in the World Economic Situation and Prospects 2012 .

Conventional approaches to managing capital inows ocus on macroeco-

nomic policies, such as the exchange-rate adjustment, manipulating policy interest ratesand scal aggregate demand management, to enhance an economy’s capacity to absorbcapital inows. However, these policies are generally not sufciently targeted to stabilizenancial ows and may have undesired side eects. Letting the exchange rate appreciate,or instance, would penalize export-oriented sectors, thus impacting growth and develop-ment. Fiscal cuts to lower aggregate demand can be costly to economic growth and theslow speed o scal decision-making makes it a less eective policy tool or dealing withshort-term volatile capital inows. Attempts by policymakers to counteract the expansion-ary impact o excessive capital inows through tightening monetary policies could bepartly sel-deeating as the higher interest rates may induce additional capital inows, thusexacerbating upward pressure on the exchange rate.

o stem capital inows and excessive credit growth, countries can implement

macroprudential measures including the maintenance o sound lending standards, coun-tercyclical capital requirements to slow down credit expansion, and balance sheet restric-tions such as limiting the oreign exchange positions o banks. While these measuresappear to have lengthened the composition o capital inows in some countries (Croatia,Peru and the Republic o Korea, or example), the eect on total net ows was limited.In Peru, where there is a large amount o dollarization in the economy mediated throughthe banking system, macroprudential measures, such as limits on oreign-exchange mis-matches, have been relatively eective at reducing risks. In the Republic o Korea, a pack-age o macroprudential measures was introduced during 2009-2010 that appears to havebrought about the intended deceleration in banks’ oreign borrowing, but it did not stemthe overall level o capital inows.

Other countries, like Brazi l and Indonesia, have opted to use more direct orms

o capital-account regulation. Most available studies nd that capital controls have beeneective in changing the composition o inows away rom short-term debt. Te impacton total ows is more ambiguous, with regulations appearing to have been more successulin some cases than in others.16 More broadly, the eectiveness o measures depends on thespecic circumstances o a country, including the quality o the existing regulatory rame-

work and regulatory capacity, the structure and persistence o inows, and the designand implementation o capital ow management measures. In particular, capital-accountregulation may be particularly difcult to implement in countries where there is a largederivatives market, since speculators can oten circumvent the restrictions through thismarket. For this reason, some countries, like Brazi l, have implemented restrictions directly in the derivatives market to test the market, albeit at an initial low rate. Overall, there is nosimple recipe or eectively managing cross-border capital ows. Macroeconomic policies,

macroprudential tools and capital-account regulations should probably come in a balancedpackage o measures and be tailored to the specic circumstances o individual countries.

As discussed above, one o the drivers o recent surges in international capitalows has been monetary easing in developed countries. Given the cross-border spillo-ver eect o monetary policy decisions, measures that incentivize investors in developedcountries to invest at home would help monetary authorities respond to slowdowns in

16 See, or example, Jonathan D. Ostry and others, “Capital inows: the role o controls”, IMF Sta

Position Note, No. SPN10/04 (Washington, D.C., February 2010).

Macroprudential measures

might be most eective

in highly dollarized

economies




developed countries and also help a llay pressures or asset bubbles in developing countries.Tus, there is a need or capital-account management in developed as well as developing countries. o this end, central banks may need to step up their international dialogue andcooperation on managing global liquidity. Better management o global liquidity wouldalso have the eect o helping to correct global imbalances.

International reserve accumulationand global imbalances

Bouts o excessive international liquidity have been part and parcel o the build-up inglobal imbalances, with surges and withdrawals o international capital ows correlated

with the build-up o reserves by developing countries (although trade balances also play a role in some countries). Reserve holdings o developing and emerging countries as a proportion o national output more than doubled between 1999 and 2008, a period o high global liquidity. Te accumulation o vast dollar reserves over this period allowed theUnited States to borrow cheaply rom abroad, keeping long-term interest rates low, which

in turn has induced greater leverage in the system. Reserve accumulation peaked at $1.2trillion in 2007 prior to the crisis, but ell as a percentage o GDP in the years since (withthe exception o 2010), ollowing trends in capital ows. In 2012, reserve accumulationell to an est imated $559 billion, down rom $777 billion in 2011, mirroring the decline incapital inows (see table III.1 or the change in reserve holdings and gure III.1 or stocksas a share o GDP).

Reserve accumulation by developing countries has allen along with the mod-eration in global imbalances, although as pointed out in Chapter I, this trend is related tooverall weakness in global demand rather than to long-term structural adjustments (see

Reserve accumulation ell

sharply in the wake o the

crisis

Figure III.1 Ratio o reserves to GDP, 1991-2012a

Source: IMF, World EconomicOutlook database, April 2012.

Data not available on WEOOctober 2012 database.

Notes: Regional groupings arebased on UN/DESA countryclassication. No data rom

1980–1989 on reservesor newly industrialized

economies (Hong Kong SAR,Rep. o Korea, Singapore,

Taiwan POC).

a Data or 2012 are WEOorecasts.

Percentage

Western Asia

Latin

America

East and

South Asia

Africa

Emerging and

developing countries

2 0 1 1

2 0 0 9

2 0 0 7

2 0 0 5

2 0 0 3

2 0 0 1

1 9 9 9

1 9 9 7

1 9 9 5

1 9 9 3

1 9 9 1

45

40

35

30

25

15

20

10

5

0




chapter I, gure I.13). Nonetheless, accumulated reserve holdings remain signicant, par-ticularly in South-East Asia, where they amount to almost 40 per cent o GDP (gure III.1).

Te massive build-up o reserves by emerging and developing countries andits eect on global stability has raised questions regarding the appropriate size o re-serves. Te build-up has been attributed to several actors. First, reserves serve as a orm

o “sel-insurance” against potential external shocks. Second, they acilitate interventionsin oreign-exchange markets to smooth exchange-rate or commodity price volatility andmitigate bubbles associated with excessive inows. Tird, reserves can be a by-product o export-led growth strategies that rely on interventions in the currency market to maintainan undervalued currency—actions sometimes considered to be mercantilist.17

Perspectives on determining the adequate size o international reserves havechanged over time. In the 1980s and 1990s, reserves were insurance against trade shocks.

At that time, the International Monetary Fund (IMF) advised countries to hold reserveslarge enough to cover three months o imports. However, the emerging market crisesin the mid-1990s, such as the Mexican “tequila crisis”, were triggered by difculties inrenancing short-term dollar-denominated debt, not unexpected trade account decits.Tis led to the view that reserves would need to be large enough to cover a country’s

short-term external debt renancing needs. Tis approach did not consider, however, theact that the emerging market crises o the1990s were also triggered by reversals in short-term capital portolio ows and the unwinding o carry trades. By the end o the 1990s,countries realized the importance o uller sel-insurance, not just against renancing riskso external debt, but also against volatility associated with international capital ows andopen capital accounts.

Empirical studies suggest that no single explanation can account or the be-haviour o all countries at all times. A recent IMF study ound that precautionary demandand sel-insurance motives both played a prominent role in the increase in internationalreserves ollowing the East Asian crisis, although mercantilism, in the orm o an under-valued real exchange rate, appears to have contributed in some cases.18 Te study alsoound a positive unexplained residual in more recent years, implying that reserves were

higher than what would be predicted by precautionary or mercantilist motives. Tis isin keeping with the role o exchange-rate management in smoothing volatility in reserveaccumulation. Tere is some evidence o this, in that central banks have been using capitalmanagement techniques to limit capital inows rather than solely buying the inows tobuild reserves in cases when the currency is not undervalued. Te goal is not to keep anundervalued currency, but to stop the continued appreciation o an overvalued one whilelimiting the build-up in reserves.

Clearly, holding large international reserves can be costly, and or a host o reasons. First, most international reserves are held in United States treasuries, which areconsidered sae but are low-yielding. Foreign-exchange reserves represent a orm o con-strained saving, since national savings that are allocated to reserves withhold unds thatcould be invested elsewhere, possibly with greater social benet. Second, accumulation o

oreign-exchange reserves tends to increase the domestic money supply because the centralbank buys oreign currency and sells local currency. Attempts to sterilize this increase in themoney supply generally involve issuing government bonds to absorb the excess liquidity,

17 Atish R. Ghosh, Jonathan D. Ostry and Charalambos G. Tsangarides, “Shiting motives: explaining

the build-up in ofcial reserves in emerging markets since the 1980s”, IMF Working Paper, No.

WP/12/34 (Washington, D.C., January 2012).

18 Ibid.

Holding reserves is costly,

and can harm long-term

investments




which leads to higher domestic interest rates and thereby raises borrowing costs. Further,the increased bond issuance can lead to a worsening in the domestic public debt burden.Te result is that oreign currency inows end up being held as reserves which in turn areinvested in United States reasury bonds, while the developing country increases its debtburden to nance domestic investment, counteracting the benet o oreign investment.

Tat a large share o international reserves is invested in government bonds andsimilar assets abroad implies a net transer o resources rom poorer countries to wealthierones. Accumulation o major reserve currencies in developing countries is a major elementin the net transer o nancial resources rom developing countries to the major economiesissuing the reserve currencies (table III.2 and gure III.2). Although net transers de-creased somewhat in 2012 in line with the lower accumulation o reserves, they remainednegative, with the exception o the LDCs, which continue to receive net positive transers.

Finally, precautionary reserve accumulation, while sensible at the nationallevel, generates allacy o composition eects at the global level, urther adding to globalimbalances and a less stable international nancial architecture as discussed above. TeCommission o Experts o the President o the United Nations General Assembly has rec-ommended that the international reserve system make greater use o IMF Special Drawing Rights (SDRs) as these provide a low-cost alternative to accumulation o internationalreserves.19 SDRs could reduce the need or precautionary reserve accumulation by provid-ing access to oreign currency liquidity when a country’s capital account is under pressure.In other words, the greater use o SDRs could reduce the need or sel-insurance by many

developing countries.Tere have also been recommendations or mechanisms to use SDR allocations

as a potential source o innovative nancing or development, although care needs to betaken to preserve the role o SDRs as a monetary instrument, as discussed urther below.

19 United Nations, “Report o the Commission o Experts o the President o the United Nations

General Assembly on Reorms o the International Monetary and Financial System”, 21 September

2009.

Constrained investment

induced by reserve

accumulation could be

reduced by the greater use

o SDRs

Figure III.2 Net transers o nancial resources to developing economiesand economies in transition, 2000-2012

-1000

-800

-600

-400

-200

0

200

2 0 0

0

2 0 0

1

2 0 0

2

2 0 0

3

2 0 0

4

2 0 0

5

2 0 0

6

2 0 0

7

2 0 0

8

2 0 0

9

2 0 1

0

2 0 1

1

2 0 1

2

Africa

Sub-Saharan Africa(excluding Nigeriaand South Africa)

East andSouth Asia

Western Asia

transition

Least developed

Economies in

countries

Latin America

Developingeconomies

Billions of dollars

Source: UN/DESA, based onIMF, World Economic Outlook Database, October 2012; and

IMF, Balance o PaymentsStatistics.

a Cape Verde graduatedin December 2007,

hence excluded rom thecalculations.

b Partly estimated.




Te Group o wenty (G20) is considering enhancing the SDR basket to include addi-tional currencies and possibly increasing allocations o SDRs. Tere is, however, politicalresistance and legal barrier to broadening the scope o SDRs. For example, the IMF Articles

would need to be amended to change the way SDRs are allocated, and an 85 per centmajority is needed or agreement regarding new allocations. Instead, international reorms

have been more narrowly ocused on reducing systemic risks created by the banking sector.

International nancial reorm

Tere are several regulatory reorms underway, which are designed to reduce the risk o uture nancial sector crises (table III.2). Te current approach to international nancialreorm has been ocused on ensuring the saety and soundness o the nancial system,ocused primarily on the banking sector through Basel III. Tis is supplemented by na-tional rule-setting (such as, the “Volcker rule” in the United States o America and theVickers Commission proposals in the United Kingdom o Great Britain and NorthernIreland) that partially separate the banking sector rom shadow banking (box III.2). Inaddition, the Financial Stability Board (FSB) has proposed a number o measures: reormsor oversight o the shadow banking system; recovery and resolution planning or systemi-cally important institutions; reorm o the over-the-counter derivatives market; uniormglobal accounting standards; reduction in the reliance on credit rating agencies; improvedconsumer protection; reorm o some compensation practices; and the establishment o macroprudential regulatory rameworks. aken together, these reorms are steps in theright direction. However, signicant gaps remain. Indeed, a recent study by the IMFound that the structure o nancial intermediation remains more or less the same as it wasbeore the crisis, with excessive reliance on wholesale unding (which tends to be riskierthan nancing through deposits), and on trading, commission and ee income rather thanon lending and credit intermediation.20

Broadly speaking, the objectives o nancial sector regulation are veold:

(i) to secure the saety and soundness o nancial institutions and the nancial systemat large; (ii) to ensure competition; (iii) to protect consumers; (iv) to promote access tonance and nancial services or all; and (v) to make certain that the nancial sectorpromotes macroeconomic stability and long-term sustainable growth.21 In addition, a key lesson rom the crisis is that rules need to address systemically important institutions andshould be comprehensive—in other words, incorporate all acets o credit intermediation.

o date, the reorm agenda has not ocused sufciently on all o the objectives.Te primary ocus has been on saety and soundness. Tere have been some eorts toimprove consumer protection by the FSB, in addition to steps taken on the national level,such as the Consumer Protection Agency in the United States, although these eorts areacing some implementation difculties. However, the new regulatory ramework mighthave the eect o weakening some o the other principal objectives. For example, the

global crisis led to increased consolidation o commercial banks. Tere is some concernthat the new regulatory ramework will lead to even greater consolidation to accommodatethe need or economies o scale, urther limiting competition in the sector as well asexacerbating problems inherent in having “too big to ai l” institutions. Furthermore, by raising the cost o riskier lending, capital adequacy rules might have the eect o limiting

20 IMF, Global Financial Stability Report , op. cit.

21 Presentation given by Joseph E. Stiglitz at the Initiative or Policy Dialogue, Financial Markets

Reorm Task Force Meeting, 25-27 July 2006, Manchester, United Kingdom.

The current approach to

international nancial

reorm remains primarily

ocused on enhancing the

stability o the banking

sector

Regulatory reorm should

take a more integral

approach




Table III.2

A snapshot o the new regulatory initiatives

Key reorms Elements Timeline

Banks

Global reorms

Basel III capital standards Changes to the denition o capital Completion 2019

Basel III capital charges Better valuation o risk Completion 2019

Incremental risk charge or trading-book activity Completion 2019

Higher capital charges or counterparty exposures in derivatives, repotrading

Completion 2019

Additional capital conservation and countercyclical buers Completion 2019

Additional capital surcharge or G-SIFIs Completion 2019

Capital charge assessed on (clearing member) banks’ centralcounterparty deault und exposures

Completion 2019

G-SIFI surcharge Additional amount o common equity or systemically importantbanks

Completion 2019

Basel III liquidity requirements Liquidity coverage ratio: requires high-quality liquid assets sucientto meet 30 days’ outows

Completion 2019

Net stable unding ratio: requires better maturity matching o assetsand liabilities

Completion 2018

Basel III leverage ratio Sets a ceiling on the measure o exposures (regardless o risk weighting) against capital (3 percent Tier 1 capital over totalexposures)

Completion 2019

FSB compensation guidelines Responsibility o boards or compensation policies Implemented

Compensation should be aligned with risks and time horizons

Supervisors should monitor compensation policies

Corporate governance Emphasis on robust corporate governance, including the role o banks’ boards

Resolution o G-SIFIs Reduce the likelihood that institutions will need to use public unds

when they ailNational reorms

Volcker rule (Dodd-Frank Act) Deposit-taking institutions restricted rom trading activities,ownership o private equity and hedge unds

Law passed, implementationpending

Vickers report Ring-encing o United Kingdom retail banks rom investmentbanking activities; additional capital or ring-enced entity

Completion 2019

Markets

Global reorms

OTC derivatives Standardization o derivatives contracts Varied

Clearing o standardized derivatives contracts through centralcounterparties (CCPs)

Trading o standardized derivatives contracts on exchanges or

electronic trading platorms where appropriateReporting o contracts to trade repositories

Higher capital and margin requirements or derivatives that are notcentrally cleared




Table III.2 (cont’d)

Key reorms Elements Timeline

Nonbanks

Global reorms

Shadow banking Monitoring o shadow banking and evaluation o risksRegistration o hedge unds; improved standards or securitization

Future regulatory reorms include enhancements to indirectregulation (regulation o shadow banks through their interactionwith banks); increased liquidity and valuation rules or money marketunds; rules governing repos and securities lending

Other initiatives

Credit ratings Registration and regulation o credit rating agencies; regulationincludes urther transparency on rating methodologies, on theperormance o ratings, and raw data

Implementation ongoing

Reduction o regulatory reliance on ratings; in the United States,this has triggered removal o reerences to credit ratings in laws andregulations

Implementation ongoing

Source: IMF, Global Financial Stability Report, October 2012, table 3.2.Note: No entry or timeline means that the reorms are still being developed. FSB = Financial Stability Board; G-SIFIs = global systemically importantnancial institutions.

What is shadow banking?

The Financial Stability Board denes shadow banking as “credit intermediation involving entities andactivities outside the regular banking system.” a Shadow banking entities are those that create lever-age or that engage in maturity and liquidity transormation.

The shadow banking sector is markedly dierent in developed than in developingcountries. In developed countries, non-bank nancial intermediation is mainly conducted by moneymarket unds, structured nance vehicles, other investment unds including hedge, investment, andexchange-traded unds, nance companies, insurance companies, and securities brokers and dealers.

These entities engage in credit intermediation through activities and instruments including securiti-zation, securities lending, derivatives, repurchase agreements and loans, thus partly competing withbanks that are relatively more strictly regulated and supervised.

The share o the United States in global shadow banking declined rom 44 per cent in2005 to 35 per cent in 2011, but its shadow banking sector remains the largest worldwide, at over 50per cent o credit intermediation.b In the euro area, shadow banking represented less than 30 percent o credit intermediation in 2010.c Important dierences remain across countries, however. TheNetherlands, Luxembourg, France and Ireland account or around three quarters o shadow bankingactivity in the euro area.d

Currently, shadow banking is o much less concern in developing economies, though it

could become more o an issue i it continues to grow or engages in products without proper regula-tions. In developing countries, unding is currently channelled rom investors to creditors, bypassingbanks through entities such as nance, leasing and actoring companies, investment and equityunds, insurance companies, pawn shops and other entities such as text and mobile phone banking.

These market participants engage in diverse credit intermediation activities that in-volve certain risks, including credit, counterparty or collateral risks, but do not as yet involve long,complex, opaque intermediation chains that create linkages between the banking and shadow

Box III.1

a Financial StabilityBoard, “Shadow banking:strengthening oversightand regulation”, 27 October

2011, available rom http://www.nancialstabilityboard.org/publications/r_111027a.pd.b Tobias Adrian and AdamB. Ashcrat, “Shadowbanking: a review o literature”, Federal ReserveBank o New York Sta Reports, No. 580 (October2012), available rom http://www.newyorked.org/research/sta_reports/sr580.pd.

c Klára Bakk-Simon andothers,“Shadow banking in

the Euro area: an overview”,European Central Bank Occasional Paper, No. 133(April 2012), available romhttp://www.ecb.europa.eu/pub/pd/scpops/ecbocp133.pd.

d Ibid.




access to nance, since smaller entities, such as micro-enterprises and SMEs, have highercapital costs. Te role o regulatory regimes in macroeconomic stability and long-termsustainable growth has not been sufciently addressed. Basel III includes a countercyclicalbuer, although it is limited.

Achieving these goals presents a complex chal lenge or policymakers sincethere can be trade-os between ensuring stability and providing necessary access to credit.However, nding an appropriate balance is imperative i the nancial sector is to ulll itsrole o allocating credit eectively or long-term sustainable growth.

Progress in implementing Basel III

Te agreed deadline or initiating implementation o Basel III is 1 January 2013. According to the Basel Committee, the adoption o the Basel III rules under national law was planned or under way in all 27 member jurisdictions o the Basel Committee in 2012, with some members acing signicant challenges to meeting the deadline. Te ramework is also expected to be implemented to some extent in many non-member countries o theBasel Committee. Judging rom past experience, implementing the ramework within theagreed schedule indeed represents a challenge. As o 2012, the previous rameworks o Basel II and Basel II.5 (expected to come into orce in end-2006 and end-2011, respec-tively) have not been implemented as yet by all Basel Committee Members.22 Moreover,some elements o Basel III will be ully phased in as late as 2018 or 2019.23 Monetary andnancial supervision authorities might consider accelerating regulatory reorms, or at leastensuring that critical elements o the reorm package can enter into orce sooner.

Basel III reorms—which include higher and better quality capital require-ments, liquidity buers and leverage rules—are designed to impose higher costs on risky

22 Basel Committee on Banking Supervision, “Report to G20 Leaders on Basel III implementation”

(Bank or International Settlements, June 2012).

23 The capital conservation and countercyclical buers will be gradually phased in rom January

2016 to January 2019; the leverage ratio is intended to be implemented in January 2018, ollowing

a parallel run; the liquidity buers will be implemented in January 2015 (30 day liquidity) and

January 2018 (longer-term liquidity).

Implementation o Basel III

will be phased in through

2019

banking sectors. One o the primary risks rom shadow banking in developing countries appears tobe rom nance companies eeding credit booms without thorough credit screening. For example,in Turkey, inappropriately regulated and aggressive commercial practices by nance companies o-ering quick loan approval via text message or automated teller machinee nurtured an unsustainable

credit boom in 2011, which had to be curbed by interventions o the central bank and regulators.Non-bank credit intermediation or corporations and nancial institutions can take on many dierentand less predatory orms, but it relies on the same ragile unding model. Nonetheless, the nancialmarkets o many developing countries are only partially integrated with global nancial markets. Asa consequence, shadow banking in developing countries poses risks that are more traditional andlocal than systemic.f

As in the developed world, the share o shadow banking in credit intermediation var-ies by country. According to some estimates, shadow banking may represent between 35 per centand 40 per cent o the nancial sector in the Philippines or Thailand, but only about 20 per cent inIndonesia and Croatia, and only slightly above 10 per cent in China.g

e Landon Thomas, “Turkeyspends reely again, and

some analysts worry ”, The

New York Times, 25 April

2011.f Swati Ghosh, Ines

Gonzalez del Mazo and İnciÖtker-Robe, “Chasing theshadows: how signicant

is shadow banking inemerging markets?”, The

World Bank EconomicPremise, No. 88 (September2012), available rom http://

siteresources.worldbank.org/EXTPREMNET/Resources/

EP88.pd.

g Ibid.

Box III.1 (cont’d)




activities o banks to internalize the costs o risky behaviour, in an attempt to incentivizebanks to reduce risky activities. As such, it should enhance the resil ience o banks towardsuture shocks. Nonetheless, it has been suggested that the measures may not be sufcientto create a stable and well-capitalized nancial system. Several studies have concluded thatcapital requirements should be signicantly higher than those envisaged by Basel III. 24

Indeed, several countries, notably some with outsized nancial sectors such as Switzerlandand the United Kingdom, have already phased in higher capital requirements or impor-tant banks in their jurisdictions. It is also argued that the leverage ratio had been metbeore the nancial crisis by many banks that later aced distress.25

Tere are also concerns that tighter bank regulations, in conjunction with thecomplexity o the Basel III ramework, might trigger a new wave o regulatory arbitrage.It is reported that new products are already being created to circumvent the new rules(box III.3).26 In most countries the regulatory supervisory capacity is limited, making itdifcult or regulators to keep pace with these kinds o developments. It is thus crucial toimprove regulatory supervisory capacity through programmes geared towards educationo regulators as well as more competitive compensation. Nonetheless, nancial marketshave been characterized by innovations and change, making it difcult or even well-

trained supervisors to be able to eectively oversee a complex regulatory system. Moregenerally, complex regulations can be difcult to administer and costly. Tis argues orbroad-based simple regulations, such as high capital ratios and low leverage ratios, withsimple countercyclical rules built in.27 Indeed, there are calls or greater regulatory sim-plicity and transparency as a way to enhance accountability, avoid regulatory loopholesand arbitrage, and acilitate implementation.28

Tere are trade-os between saety and allocation o credit to risky, albeitproductive, activities. Basel rules, which have higher capital charges or riskier invest-ments, could result in less lending to SMEs. Te tighter capital and liquidity standardsin Basel III could also reduce the availability o long-term nancing, with a particularly negative impact on green investments, as well as on developing countries that have largeinrastructure needs. Overall lending to some developing countries (particularly to those

with sub-investment-grade credit ratings) is likely to be impacted, as the capital require-ments under Basel III would imply higher borrowing costs and scarcity o credit in thesemarkets. In particular, and despite amendments to the Basel III ramework, 29 there arecontinuing concerns over the implications o the new rules or trade nance (box III.2).Similarly, very sae nancial systems might also tend not to be inclusive in terms o oer-ing nancial services to the poor.

24 See World Economic Situation and Prospects 2012 (United Nations publication, Sales No. E.12.

II.C.2).

25 Stephany Grifth-Jones, Shari Spiegel and Matthias Thiemann, “Recent developments in regulation

in the light o the global nancial crisis: implications or developing countries”, IPD Working Paper

(Initiative or Policy Dialogue, Columbia University, 2011).


27 It may still be appropriate to have some specic regulations in particular areas, but only when they

are areas that are relatively sel-contained and or which regulators have access to ull inormation.

28 See “The dog and the risbee”, speech by Andrew G. Haldane, Executive Director, Bank o England,

at the Federal Reserve Bank o Kansas City’s 366th economic policy symposium, Jackson Hole,

Wyoming, 31 August 2012; and World Bank, Global Financial Development Report 2013:

Rethinking the Role o the State in Finance (Washington, D.C., September 2012).

29 Basel Committee on Banking Supervision, “Treatment o trade nance under the Basel capital

ramework” (Bank or International Settlements, 2011).

Discrepancies in nancial

reorm between the

banking and shadow

banking sectors is likely

to induce more regulatory

arbitrage

Basel rules could result in

less lending to SMEs and

reduce availability o long-

term nancing, particularly

in developing countries.




Global systemically important nancial institutions

During the global nancial crisis, large nancial institutions, in particular, were oundto have spread systemic risks. In response, G20 leaders agreed to strengthen the oversightand regulation o global systemically important nancial institutions (G-SIFIs), ocused

on minimizing the adverse impacts their distress or ailure might have on the nancialsector as well as on the broader economy. In 2011, the FSB identied an initial group o 29 G-SIFIs, nine o which are headquartered in jurisdictions that have not yet ully imple-mented Basel II or II.5. A key element o the measures put orward by the FSB to addressthe phenomenon o “too big to ail” is that G-SIFIs should have a loss-absorbing capacity beyond the general standards o Basel III (that is, an additional capital requirement o between 1.0 per cent and 3.5 per cent, to be phased in by 2019), although it is not clear

Global systemically

important nancial

institutions will have to

raise their loss-absorbingcapacity

Capital arbitrage since the crisis: trade nance securitization

Despite a decline in securitization ollowing the nancial crisis, new nancial products that appear tocircumvent regulatory rules are being created.a It has, however, been argued that not all o what has

come to be known as “regulatory arbitrage” (that is, using o-balance-sheet structures to circumventcapital requirements) necessarily increases systemic risks. To the extent that regulators with limitedmarket inormation misprice risk, it is argued that these trades might have the eect o making themarket more ecient. An example where this might be the case is in trade nancing. Many tradenance instruments, such as letters o credit, are held o balance sheet. The leverage rule in BaselIII requires banks to set aside the capital equivalent o the value o o-balance-sheet items using acredit-conversion actor that reects the likelihood o a contingent o-balance sheet risk becomingan on-balance sheet item. The Basel III credit conversion actor or trade nance is 100 per cent, vetimes the 20 per cent gure generally used in Basel II. The implication is that the collateral used intrade nancing is not counted in the evaluation o the risk o the loan.

Aside rom raising questions on whether such items should be held o balance sheetto begin with, the underlying question is how to value the collateral in trade nance. The problem isbased on an inormational asymmetry. From the regulator’s perspective, there is not enough data ontrade nance deaults available to reduce the risk weighting.b Banks, which believe they have a better

idea o the risks in the loan portolios, argue that trade nance is less likely to deault and that many,although not all, trade nance deals are backed by strong collateral. Nonetheless, the regulatorycapital costs o the loans devalue the collateral. As a result, banks have created products to securitizepools o trade nancing loans, which are then sold to investors.

This securitization has allowed some banks to continue trade nancing in developingcountries, and underscores the potential benets that securitizations can have or nancing or devel-opment. There are, however, real risks associated with these products that need to be addressed. Manystructures incorporate bank guarantees that are not necessarily ully reported, despite the act thatthe banks still maintain some exposure to the underlying risks. At present this does not pose systemicrisks since the market is small and limited to investors with expertise in this area. However, i it wereto grow in size it would likely bring in investors with limited knowledge o trade nance, which couldresult in severe mispricing, similar to what happened in the mortgage markets (although most likelyon a smaller scale). In addition, there is a risk associated with the loans being originated or the pur-pose o securitization (reerred to as the “originate to distribute” model), which oten implies reduced

credit monitoring and screening. Ironically, this then justies the higher risk ratings, but also leads toincreased risks or both borrowers and investors, as well as systemic risks created by credit bubbles.

There is a need to keep exposures, such as those implicit in guarantees or other mecha-nisms, on balance sheet, transparent, and within the regulatory monitoring ramework. In addition,there is a need or regulators to monitor the growth o securitizations in dierent sectors across thesystem in order to better track the build-up that creates bubbles with systemic implications.

Box III.2

a IMF, Global Financial

Stability Report: Restoring

Confdence and Progressingon Reorms, October 2012.

b Basel Committee on

Banking Supervision,“Treatment o trade nance

under the Basel capitalramework (Bank or

International Settlements,2011).




that this will be sufcient. A urther concern is that the new regulations might exacerbatethis concentration o the nancial sector in a ew big banks, since absorbing the highercosts may require economies o scale.30

Te FSB has a lso recommended that G-SIFIs develop recovery and resolutionplans (also known as l iving wills), and that countries prioritize this in national regulatory

rameworks. Other related FSB recommendations include the establishment o crisis man-agement groups or G-SIFIs, which would include regulators, supervisors, central banks,and other authorities, as well as cross-border cooperation. Te FSB is currently developing standards or domestic regulators to ollow in supervising G-SIFIs, and is working to ex-tend the resolution planning ramework to systemically important insurers and non-bank G-SIFIs.

Most countries have been slow to implement the FSB recommendations. Tereare some exceptions, however, such as the Dodd-Frank Wall Street Reorm and ConsumerProtection Act in the United States, which incorporates living wills into its ramework.

Altogether, the “too big to ail” problem remains largely unresolved. Measures to decreasenancial concentration should be explored, including steps to reduce the size o nancialconglomerates by separating dierent business lines and creating a more diversied bank-

ing system, with a greater role or cooperative and savings banks, or instance.

Reorms in compensation and incentives

Compensation practices encouraging excessive risk-taking were a key contrib-uting actor to the global nancial crisis. Many nancial market participants are com-pensated on the basis o annual perormance, which can incentivize excessive short-termrisk-taking, without actoring in medium- or long-term risks. According to FSB surveyso market participants, more than 80 per cent o respondents believe that compensationpackages contributed to the accumulation o risks that led to the crisis, with general agree-ment that without changes in such incentives, other reorms are likely to be less eective.31

Te dominant view among policymakers as represented by the FSB is that

“executive compensation is not simply a market wage, but an incentive system”.32 Teimplication is that because compensation structures and incentive structures have an e-ect on risk-taking within nancial institutions, they should all under the regulatory ramework, whereas compensation levels, as such, need not. o this end, in 2009 the FSBdened “principles and guidelines or sound compensation”, aimed at curbing excessiverisk-taking by nancial institutions by improving the alignment o compensation withrisk-taking, as well as the governance and supervision o compensation practices. Many countries have since taken steps to incorporate compensation structures into their supervi-sory rameworks, but in general it is not clear that these wil l be strong enough to ully a lterincentives. In particular, the FSB rules dene broad guidelines only and do not set clearparameters on how they should be implemented. For example, in the United States, banks

with a global presence are required to identiy employees whose incentive compensationcan inuence risk-taking and to incorporate eatures into their compensation packagesthat promote balanced risk-taking. Te details vary, however, across jobs and businesses.


31 Financial Stability Board (FSB), “Principles or sound compensation practices: Implementation

standards”, 25 September 2009, available rom http://www.nancialstabilityboard.org/

publications/r_090925c.pd.

32 FSB, “Principles or sound compensation practices”, 2 April 2009, available rom http://www.

nancialstabilityboard.org/publications/r_0904b.pd.

The “too big to ail”

problem continues to be

unresolved

Eorts to improve

compensation practices in

the nancial sector remain

minimal




In 2012, JP Morgan Chase’s unexpected multibillion dollar loss in a group that was meantto be hedging the bank’s positions—not engaged in risk-taking—shows how difcult suchidentication and monitoring can be. Furthermore, the proposed measures apply to only the banking sector, and in particular to G-SIFIs, and do not address shadow banking,

where risk-taking and compensation are highest.

Global risks o shadow banking

Another side eect o the new regulations is that risky activities that require higher capitalmight shit rom the regulated banking system to shadow banking practices. Te valueo shadow banking assets rose rom an estimated $26 trillion in 2002 to $62 trillion in2007. Although shadow banking as a percentage o GDP declined ater the crisis, assetsin the shadow banking sector remain signicant, at $67 trillion in 2011 (gure III.3), or24 per cent o assets held by the global nancial system (gure III.4). Shadow banking activities are particularly important in certa in countries, such as the United States wherethe sector harbours assets worth around $23 trillion33 and represents 53 per cent of credit

intermediation (down from 60 per cent in 2007).34

Credit intermediation in the shadow banking sector is perormed by a widerange o disparate entities with very dierent characteristics (box III.2) However, two

common elements exist among them: they are not subject to the banking sector regulatory ramework and, as such, they lack direct access to a liquidity backstop through a publiclender o last resort (although central banks have provided shadow banking entities with

33 FSB, “Shadow banking: strengthening oversight and regulation: recommendations o the

Financial Stability Board”, 27 October 2011, available rom http://www.nancialstabilityboard.org/

publications/r_111027a.pd.

34 Tobias Adrian and Adam B. Ashcrat, “Shadow banking: a review o literature”, Federal Reserve

Bank o New York Sta Reports, No. 580 (October 2012), available rom http://www.newyorked.

org/research/sta_reports/sr580.pd.

Shadow banking assets

amount to 24 per cent o

the global nancial system

Figure III.3 Assets o shadow banking entities worldwide, 2002-2011

Source: Financial StabilityBoard, based on national

ow-o-unds data.

Note: Includes 20 jurisdictionsand the euro area. 2

0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

In USD billions

(left-hand scale)

per cent of GDP

(right-hand scale)

120

110

100

90

80

130

140

65,000

70,000

60,000

55,000

50,000

45,000

40,000

35,000

30,000

25,000

20,000




liquidity in crisis situations with systemic implications, as was the case with money market unds in the United States, discussed below).35 As a result, shadow banking al lowsgreater risk-taking than traditional banking, as well as opportunities or capital, tax andaccounting arbitrage.

Both banking and non-banking credit intermediation involve risks, includ-ing leverage, maturity and liquidity mismatches, procyclicality, and lack o transparency.Tese risks become magnied in shadow banking entities, in large part because they areoutside o the banking regulatory ramework. In addition, many shadow banking entities

have compensation schemes based on short-term perormance that can lead to excessiverisk-taking, as discussed earlier.

Leverage ratios in shadow banking entities are oten much higher than inbanks. Leverage ratios were close to 30 in many investment banks prior to the nancialcrisis.36 Some hedge und strategies are based on leveraging more than 50 to 100 timesthe und equity, and structured vehicles, or at least certain tranches, tend to be highly leveraged by design. Shadow banking entities, such as hedge unds, pose systemic risksthrough interlinkages with the banking system, such as leverage provided to hedge undsby regulated banks and counterparty risks rom trading activities. In the absence o clearring-encing between banks and shadow banks, many leveraged shadow banking entitiesremain afliated with banks or directly owned by them. While moving activities o banks’balance sheets may be consistent with the regulatory ramework, the build-up o leverage

in shadow banking entities with linkages to banks jeopardizes nancial stability. Althoughsome regulation, like the Dodd-Frank Wall Street Reorm and Consumer Protection Actin the United States, attempts to limit these linkages, many o the measures that may haveensured a more solid ring-encing were let out or diluted in the nal agreement.

35 Ibid.

36 William Wright, “Investment banks and the death o leverage”, Financial News, 26 April 2011,

available rom http://www.enancialnews.com/story/2011-04-26/investment-banks-and-the-

death-o-leverage.

Weakly regulated shadow

banking magnies

leverage, maturity and

liquidity mismatches,

procyclicality and lack o

transparency

Figure III.4

Share o total nancial assets, 2002-2011

0.00

10.00

20.00

30.00

40.00

50.00

60.00

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

Source: Financial StabilityBoard, based on national

ow-o-unds data.

Note: Includes 20 jurisdictionsand the euro area.

Banks

Shadow Banking

(a.k.a., other nancial

intermediaries)

Insurance companies

and pension unds

Central banks

Public nancial

institutions




In addition, many shadow banking entities use short-term wholesale unding to nance long-term and illiquid assets, such as borrowing rom money market unds orby issuing short-term securities, which entail greater renancing risks than traditional de-posits. At the same time, shadow banking entities generally lack ofcial access to a lendero last resort, and are also outside government deposit insurance programmes, making

them more vulnerable to bank runs.37

For example, money market unds (MMFs) in theUnited States experienced such a run during the crisis. MMFs hold short-term securities,and pass the interest on to their investors. Consumers and investors oten use these undsas alternatives to bank accounts, and do not expect to lose their principal investment.However, during the crisis, the value o the short-term securities held by the unds ell, sothat the net asset va lue o at least one MMF ell below 100 per cent. Within two days o the announcement o “breaking the buck”, investors had withdrawn approximately $200billion or 10 per cent o assets rom the MMF market. Te redemptions contributed toa reezing o the United States commercial paper market, so that top-rated United Statesrms were unable to renance working capital loans, and to a spike in short-term UnitedStates interest rates. Ultimately, the Government provided a guarantee and liquidity back-stop to stop the run.38

Most shadow banking entities are also subject to mark-to-market accounting, which amplies procyclicality, especia lly in combination with secured (or collatera lized)nancing. When asset values all, additional collateral must be posted, which can orceentities into sell positions in order to meet collateral ca lls, urther depressing asset prices.Tis amplies deleveraging during crises and, conversely, money creation in good t imes,potentially weakening the countercyclical eectiveness o monetary policy.

Tese risks are compounded by the lack o transparency in many shadow banking activities. Hedge unds are notoriously secretive about their strategies and posi-tions, and many structured products are opaque. For example, prior to the crisis, banksprovided guarantees to o-balance-sheet structured investment vehicles (SIVs). In theevent o deaults above a specied threshold on the underlying loans, the SIVs wouldtranser the non-perorming loans to the bank’s balance sheet. Tese guarantees, which

were generally hidden rom both regulators and shareholders, substantially increased theriskiness o the banks.

In addition, many shadow banking entities are extremely complex and difcultto understand, leading to systemic mispricing o securities, which can ampliy boom andbust cycles. Tis was particularly evident prior to the crisis with respect to securitizationand structured products, especially those that securitized sub-prime mortgages. Althoughthe sub-prime mortgage market was introduced in the United States in the 1980s, it didnot become sizeable until the late 1990s, growing rom 83,000 mortgages in 1995 to morethan 1,600,000 in 2006.39 As such, there were only limited data on how these mortgages

37 Whereas deposits in banks are guaranteed by ofcial insurance unds, such as the Federal

Insurance Deposit Corporation (FDIC) in the United States, shadow banking at best relies on

private guarantees, which oten become unreliable in difcult times.

38 The direct extension o public guarantees to several shadow banking entities and markets

contributed to restoring some nancial stability, but it also opened a debate about the legality

and legitimacy o using public unds to assist parts o the nancial sector that were not entitled to

such assistance as well as shortcomings o existing governance mechanisms. See Levy Economics

Institute o Bard College, “Improving governance o the government saety net in nancial crisis”,

April 2012, available rom http://ww w.levyinstitute.org/pubs/rpr_g ov_12_04.pd.

39 Souphala Chomsisengphet and Anthony Pennington-Cross, “The evolution o the subprime

mortgage market”, Federal Reserve Bank o St. Louis Review , vol. 88, No. 1 (January/February

2006), pp. 31-56.

Shadow banking’s excessive

reliance on short-term and

secured unding heightens

systemic risk

Many shadow banking

entities are prone to

mispricing securities

and misleading risk

management practices




would perorm in a severe economic slowdown. Given the limited historica l data, rating agencies used dubious assumptions about deault rates and correlations that were pluggedinto models designed to be overoptimistic. As a result, risks were systematically ignoredand not captured in available data. Ultimately, investors’ blind reliance on ratings led many in the nancial community to trade products they did not understand. While securitized

products can have benets or lending, especially to underserved groups (box III.3 above),it is crucial that they be eectively regulated in order to identiy and reduce systemic risks.

Progress in regulating shadow banking

Te build-up o systemic risk that occurred in shadow banking entities in the run-up tothe crisis highlights the need or a new approach to nancial sector regulation—one thatencompasses monitoring and regulation o all mechanisms that intermediate credit. Mosteorts to reorm shadow banking are being coordinated at the international level, butprogress has been slower than expected. At the November 2010 Seoul Summit, in view o the completion o the agreement on new capital standards or banks in Basel III, theG20 leaders requested that the FSB, in collaboration with other international standard-

setting bodies, develop recommendations to strengthen the oversight and regulation o theshadow banking system by mid-2011.40

In October 2011, the FSB proposed an overall approach and ormulated somegeneral principles and recommendations,41 ocused on banks’ interactions with shadow banking entities, MMFs, other shadow banking entities, securitization, and securitieslending and repos.42 Te proposed approach and possible regulatory measures wereurther rened and open or public consultation in November 2012.43 Tose measuresinclude imposing concentration and exposure limits as well as stricter consolidation rulesto limit the vulnerability o banks to risks in the shadow banking sector, and to ensurethat bank guarantees are included on bank balance sheets. In the case o MMFs, the rulesbeing considered would require that MMFs move rom constant to variable net asset valueaccounting and accept the imposition o bank-like capital buers. Proposed measures to

reduce risks in relation to securitization include improving inormation disclosure and im-posing retention requirements, which require banks to maintain a portion o the security on their balance sheet in order to increase their stake in credit evaluation and monitoring o the portolios. Proposed rules to temper the procyclicality o collateralized lending in-clude providing better guidelines on collateral management, valuation and reuse. Finally,the role o credit rating agencies should be reduced and the transparency and reporting o inormation continually improved.

40 FSB, “Shadow banking: scoping the issues”, 12 April 2011, available rom http://www.

nancialstabilityboard.org/publications/r_110412a.pd.

41 FSB, “Shadow banking: strengthening oversight and regulation”, op. cit.

42 FSB, “Strengthening the oversight and regulation o shadow banking: progress report to G20

Ministers and Governors, 16 April 2012, available rom http://www.nancialstabilityboard.org/

publications/r_12042 0c.pd and “Progress o nancial regulatory reorms”, 31 October 2012,

available rom http://www.nancialstabilityboard.org/publications/r_121105.pd.

43 FSB, “Strengthening the oversight and regulation o shadow banking: an integrated overview o

policy recommendations”, 18 November 2012, available rom http://www.nancialstabilityboard.

org/publications/r_121118.pd and “Strengthening the oversight and regulation o shadow

banking:a policy ramework or strengthening oversight and regulation o shadow banking

entities”, 18 November 2012, available rom http://www.nancialstabilityboard.org/publications/

r_121118a.pd.

Progress in coordinating

reorm eorts to reduce

systemic risk in shadow

banking has been slow




o reduce risks in the derivatives market, the G20 has also agreed that OCderivatives that can be standardized should be traded on ormal exchanges or electronicplatorms by the end o 2012. Te United States, the EU and Japan have made progressin implementing these reorms and are expected to have them ully implemented by theend o 2012. Te regulation and transparency o the over-the-counter derivatives mar-

ket should be improved through requirements or the reporting and central clearing o transactions. Despite slow implementation, it is expected that the progress in terms o inrastructure and legislation will allow at least the jurisdictions with the largest marketsin over-the-counter derivatives to comply with the deadline.44

At the domestic level, initiatives have been taken in some countries to improveregulation in a limited number o areas.45 Inormation disclosure standards in debt se-curitization, or instance, have been strengthened in several countries. However, recentsetbacks o regulatory proposals in the United States and slow progress in other developedcountries cast doubt over the possibility o reaching an international consensus that wouldsignicantly reorm and contain systemic risk generated in shadow banking. Te contin-ued existence o opportunities or capital, tax and accounting arbitrage, and the exclusiono shadow banking rom the debate on perverse compensation incentives and excessive

risk-taking, urther hinder the possibility o decisively tackling systemic risks generatedby shadow banking.

At the global level, it is crucia l to ensure that the implementation o regulationsis internationally coordinated and consistent. Although a regulatory ramework needs toultimately be designed or the needs o the domestic economy, which can dier acrosscountries, regulatory arbitrage needs to be limited so that high-risk activities will not bemerely shited rom more to less strictly regulated sectors or jurisdictions. Te establish-ment o rameworks or monitoring implementation by the FSB and the Basel Committeeor Banking Supervision, which involve peer reviews, is a step in the right direction in thisregard. Nonetheless, the complexity o the proposed regulations could present new costs.Ultimately, a simple, comprehensive regulatory structure might be more efcient.

Other international nancial stability issues

Global nancial saety net

Te multilateral capacity to provide liquidity represents a crucial actor in saeguarding global nancial stability. A reliable global nancial saety net would also reduce the incen-tive or countries to accumulate reserves in order to cope with adverse shocks. In the wakeo the nancial crisis, steps have been taken to strengthen the global nancial saety net.

In 2012, resources available to the IMF or crisis prevention and resolution were signicantly reinorced. A number o countries committed themselves to provide

an additional $461 billion or this purpose, a lmost doubling the Fund’s lending capacity.Tese resources will be in addition to quota increases under the IMF 2010 quota review and previously enhanced borrowing arrangements o the Fund with member countries

44 FSB, “Overview o progress in the implementation o the G20 recommendations or strengthening

nancial stability”, 19 June 2012, available rom http://www.nancialstabilityboard.org/

publications/r_120619a.pd.

45 For a snapshot o the status o various nancial reorm initiatives, see IMF, Global Financial

Stability Report , op. cit., table 3.8.

Opportunities or capital,

tax and accounting

arbitrage remain abundant

IMF resources were sharply

increased in 2012




and central banks. Te IMF also continued to reorm its liquidity and emergency lending acilities. In 2011, the Precautionary Credit Line was replaced by the Precautionary andLiquidity Line, which is designed to more exibly meet the liquidity needs o membercountries with sound economic undamentals. In addition, the Fund’s instruments oremergency assistance were consolidated under the new Rapid Financing Instrument,

which may be used to support a range o urgent balance-o-payments needs. Altogether, the international nancial saety net has continued to evolve towards a multilayered structure comprising global, regional and bilateral components.46 Te overall size o the collective saety net, however, remains small in comparison to re-serves accumulated by national central banks. Moreover, there continues to be a lack o a global mechanism ensuring the swit and sufcient availability o substantial resourcesto stabilize market conditions in times o systemic liquidity crises. Eorts to urtherstrengthen crisis-lending acilities should thereore ocus on enhancing the dierent lay-ers o the nancial saety net as well as strengthening the coordination and consistency between the mechanisms at dierent levels.

Te G20 Principles or Cooperation between the IMF and Regional Financing Arrangements, endorsed at the Cannes Summit, recognized that enhanced cooperation

between IMF and regional nancial arrangements would be a step towards better crisisprevention and resolution. Te nancial and operational capacity o mechanisms in someregions has been reinorced, as in Europe or in East Asia. In the euro area, the EuropeanStability Mechanism was introduced, which provides rescue unds o €500 billion (about$628 billion). In May 2012, the members o the Association o Southeast Asian Nationsplus China, Japan and the Republic o Korea under the Chiang Mai Initiative agreedto double the size o their emergency liquidity programme to $240 billion and make itmore readily available.47 In Latin America, the Inter-American Development Bank andthe Andean Development Bank are playing increasingly important roles, but these actas development banks rather than as monetary unds. In Arica, there is no appropriateinstitution that can step in to provide regional liquidity.

In terms o the relative size o the dierent components o the global nancial

saety net, it is important to note that the bulk o liquidity needed to ease unding pres-sures has been provided by key central banks. For instance, the volume o Long-ermRenancing Operations oered by the European Central Bank in late 2011 and early 2012alone amounted to over €1 trillion. Te involvement o major central banks will thereoreremain pivotal or a unctioning and sufcient global nancial saety net. Te creationo a more permanent ramework o liquidity lines between key central banks should begiven consideration. Te existence o such agreements, even in times o limited usage, isconsidered to have a stabilizing eect on markets.

Multilateral and nancial sector surveillance

Surveillance o the global economy or early warnings on economic and nancial risksis another key element in taming the boom-bust cycles o international nance. In therun-up to the global crisis, the build-up o such risks was not properly captured by IMF

46 See, or instance, Pradumna B. Rana, “The evolving multi-layered global nancial saety net: role

o Asia”, RSIS Working Paper, No. 238 (S. Rajaratnam School o International Studies, Singapore, 16

May 2012).

47 See “Reorming international nancial saety nets”, statement by Naoyuki Shinohara, IMF Deputy

Managing Director, to the Asian Development Bank 45th Annual Meeting, Manila, Philippines, 5

May 201 2, available rom im.org/external/np/spe eches/2012/050512. htm.

More eorts are needed

or improving global saety

nets

Comprehensive and timely

risk identication should be

the priority or multilateral

nancial surveillance




surveillance. In particular, shortcomings in the surveillance approach were identied with regard to cross-border and cross-sectoral linkages. Te ability to assess the impacto policies and shocks in major economies on other countries and regions and determinethe linkages between the nancial sector and the real economy are central to eectivesurveillance. Eorts o the IMF have continued to strengthen the capacity o multilateral

surveillance to identiy risks to global nancial and economic stability in a timely andcomprehensive manner. It has also taken a number o steps to strengthen the quality andcoverage o its surveillance activities.

In 2011, the Fund prepared its rst spillover reports or the world’s ve largesteconomies (China, Japan, the United Kingdom, the United States, and the euro area) tobetter reect interconnections between the world’s economies. Te reports assessed theimpact o policies in those economies on partner economies and stressed the importance o nancial channels or transmitting global shocks. Implementing the recommendations o its 2011 riennial Surveillance Review and the related Managing Director’s Action Plan,the Fund has urthermore continued to reorm and broaden its surveillance approach,through better integration o bilateral and multilateral surveillance, or instance. Temonitoring o global stability risks emanating rom nancial sectors has been strength-

ened by the decision to make nancial stability assessments at ve-year intervals a manda-tory part o surveillance or the 25 jurisdictions with systemically important nancialsectors. Under the revamped IMF/World Bank Financial Sector Assessment Programme,several systemically important nancial sectors have been assessed in 2012. Furthermore,a new IMF Financial Surveillance Strategy was adopted in September 2012, which aimsto strengthen the analytica l underpinnings o risk assessments and policy advice, upgradethe instruments and products o nancial surveillance, and engage more actively withstakeholders in order to improve the traction and impact o nancial surveillance.

International development cooperationand ofcial ows

Ofcial development assistance

International public nancing represents a orm o global collective action or nancing o global social, economic and environmental goals, which are oten not nanced by the pri-vate sector. In addition, ofcial nancing can be used to leverage private nance in areasthat promote social goals, such as climate nancing. However, similar to private nance,ofcial nancing to countries has been subject to instability and unpredictability. Aterreaching a peak in 2010, ODA rom member countries o the Development AssistanceCommittee (DAC) o the Organization or Economic Cooperation and Development

(OECD) ell 2.7 per cent in real terms to $25 billion in 2011, equivalent to 0.31 o grossnational income (GNI) o DAC members. Tis represents the rst signicant all in ODA,excluding years o exceptional debt relie, since 1997 (gure III.5). Net ODA ell in 16countries, including the largest donors, such as the United States and the EU countries,

which reduced their shares o ODA in GNI rom 0.21 per cent to 0.20 per cent and rom0.44 per cent to 0.42 per cent, respectively. Steep declines were observed in Greece and Spain(more than 33 per cent) and Austria, Belgium and Japan (more than 10 per cent). Moreover,expected tight aid budgets in DAC member countries are expected in the coming years.

In 2011, ODA ell or the

rst time in teen years




Bilateral ODA to the least developed countries (LDCs) ell by about 2.0 percent in real terms in 2011, even though donors renewed their commitment to provide atleast 0.15 per cent o their GNI as aid to LDCs by 2015 at the Fourth United NationsConerence on the Least Developed Countries (LDC IV) in May 2011. Te Programmeo Action or the Least Developed Countries or the Decade 2011-2020 set a target that atleast hal o the LDCs should be eligible or graduation rom the category by 2020.

Te all in ODA widens the gap on aid delivery between global aid and the0.7 per cent agreed United Nations target by $4 billion, rom 0.38 per cent o donor GNIin 2010 to 0.39 per cent. otal ODA would have to more than double to about $300

billion in 2011 dollars to reach the target.48

As o 2011, only Denmark, Luxembourg,the Netherlands, Norway and Sweden exceeded the United Nations ODA target. Morerecently, however, the Netherlands announced plans to cut its aid budget by €1 billion by 2017, which will bring its contribution well below 0.7 per cent.

Declining ODA thus endangers the prospect o achieving the internationaltargets adopted by donors at major international ora 49 during the past decade. Tis wasalready apparent in 2010 in the ailure to reach the G20 Gleneagles summit pledge o reaching 0.36 percent level o the combined GNI o the DAC members, which was, inturn, regarded as an intermediate objective toward meeting the long-standing UnitedNations ODA target o 0.7 per cent. In addition, the commitment made in Gleneagles toincrease aid to Arica by $25 billion in 2010 was not met either.

An OECD Development Centre Study, published in April 2012,50 estimates a

$120 billion additional resources gap to achieving the MDGs, while the current ows o

48 See MDG Gap Task Force Report 2012: The Global Partnership or Development—Making

Rhetoric a Reality (United Nations publication, Sales No. E.12.I.5), p 9.

49 Including the Monterrey (2002) and Doha (2008) conerences on nancing or development, the

Millennium Development Goals (MDG) and the Fourth United Nations Conerence on the Least

Developed Countries in Istanbul (2011), in particular, the G20 Gleneagles summit pledges.

50 Organization or Economic Cooperation and Development (OECD), “Achieving the Millennium

Development Goals: more money or better policies (or both)?”, Issue Paper, available rom http://

www.oecd.org/social/povertyreductionandsocialdevelopment/50463407.pd.

Figure III.5 ODA rom Development Assistance Committee (DAC) countries as a percentage o donor-country gross national income and in United States dollars, 1960-2011

-

1 9 6 0

1 9 6 3

1 9 6 6

1 9 6 9

1 9 7 2

1 9 7 5

1 9 7 8

1 9 8 1

1 9 8 4

1 9 8 7

1 9 9 0

1 9 9 3

1 9 9 6

1 9 9 9

2 0 0 2

2 0 0 5

2 0 0 8

2 0 1 1 -

U S $

b i l l i o n s i n

2 0 1 0

p r i c e s

P e r c e n t a g e

ODA (percentage of DAC

donor-country GNI)

ODA (billions of dollars)

140

120

100

80

60

40

20

0.7

0.6

0.5

0.4

0.3

0.2

0.1 Source: OECD onlinedatabase, available athttp://www.oecd-ilibrary.

org/statistics (accessed 16November 2012).




country-programmable aid rom OECD countries stand at roughly hal this gure. Morethan hal o it is needed in 20 low-income countries with per capita income lower than$1,000 and, in the absence o expeditious action, about 35 countries will a ll short o thegoal o halving the number o people living in absolute poverty. Urgent action is requiredor these pledges to regain credibility and the necessary political traction.

Following the shortall in the EU target or ODA delivery, the Foreign AairsCouncil o the European Union took a decision on the proposed “Agenda or Change” by the EU Commission, in which it reafrmed its commitment to achieve all their develop-ment aid targets—including the collective 0.7 per cent ODA to GNI target—by 2015.51 Furthermore, the Council reiterated its commitment to policy coherence or developmentand identied key strategic priorities. Te Council ’s ocus is on governance and inclusivesustainable growth as the two over-arching pillars o development cooperation, and it willollow a more dierentiated approach to countries at varying levels o development andconcentrate on a maximum o three sectors per country. Te mix and level o aid wouldbe adapted according to needs, capacity and impact, as well as the progress made in com-mitments to—and the record on—human rights, democracy and rule o law, reormsimplementation and meeting the needs o the people.

Beore the Council approved the “Agenda or Change”, the April 2012 DACReview o the Development Cooperation Policies and Programmes o the European Unionnoted that more progress was needed. Te Review made a number o recommendations,52 including strengthening its dierentiated international cooperation strategy with ap-propriate unding within the 2014-2020 nancial ramework, simpliying its complex budgetary and administrative processes, while al igning with member country policies anddevolving more authority to its sta in the eld.

Recently, the European Parliament development committee adopted a seto amendments that will be the basis o the negotiations with the Council on the new Development Cooperation Instrument regulation that will come into eect when the cur-rent one expires (ater December 2013). Te September 2012 proposed amendments53 include a renewed ocus on inequality, since the proposed Agenda or Change selection

implied that middle-income countries would lose EU bilateral aid, based mostly on percapita income. Other important aspects are the call or a smoother transition when phas-ing out aid, more democratic oversight, and making climate change-related aid additionalto the 0.7 per cent contribution that member states have to provide as ODA.

DAC members approved a Recommendation on Good Pledging Practice to en-sure credible and easible pledges with enhanced accountability and transparency in 2011.Now, donor countries, who are in a position to do so, need to set progressive quantitativeaid targets based on recipients’ needs assessments. Furthermore, LDCs need more accessto highly concessional unds and grants i they are to meet their essential spending needsand also respond in a countercyclical way to the global economic crisis without alling back into debt distress. Tis is particularly true or those LDCs acing ragile situationsresulting rom institutions being weakened by the risk that their share o ODA allocation

will be lowered based on perormance.

51 Council o the European Union, “Council conclusions: increasing the impact o EU development

policy—an agenda or change”, issued at the 3166th Foreign Aairs Council meeting in Brussels, 14

May 2012.

52 OECD, “EU development co-operation: improving but still cumbersome”, available rom http://

www.oecd.org/newsroom/eudevelopmentco-operationimprovingbutstillcumbersome.htm.

53 See, “EU development aid must take social inequalities into account, say MEPs”, European

Parliament News, 18 September 2012, available rom http://www.europarl.europa.eu/news/

en/pressroom/content/20120917IPR51498/html/EU-development-aid-must-take-social-

inequalities-into-account-say-MEPs.




Tere is also evidence that along with the drop in ODA, the prole o ODA hasshited, particularly or low-income country recipients. As shown in gure III.6, budgetsupport has allen and project support has grown, along with the decline in aid. Tis couldbe indicative o an eort by donors to make aid allocation more results orientated, believ-ing that this increases aid efciency. “Measurable outputs” are important rom the donors’perspective, as programmes that have a clear results ocus tend to more readily receiveparliamentary approval in donor countries. Nonetheless, the explosion in the number o individual aid projects by multiple donors has been widely criticized or not only exac-erbating the ragmentation o aid architecture, but also imposing high transaction costson recipient governments with scarce resources, ailing to align with countries’ nationalpriorities and development strategies, and undermining country ownership—which is atthe core o the Paris Principles o on Aid Eectiveness. Recognition that the role o aidlies in encouraging and supplementing national resource mobilization to meet nationaldevelopment goals, including the MDGs, has led to calls or aid to be increasingly usedor budget support.

As a whole, the objectives o the 2005 Paris Declaration on Aid Eectivenessset or 2010 have not been ully implemented, with only one out o 13 targets met.Establishing mutual accountability mechanisms has been the indicator with the leastprogress so ar. While recipients have, in general, complied with this ramework, donorshave not.54 As recognized in the Accra Agenda o Action, aid distribution across countries

remains insufciently coordinated and the problem o aid “darlings” and “orphans”, as well as “herding” behaviour by donors persists, with donor sel-interest and geopoliticalactors oten outweighing recipients’ needs and their ability to use aid eectively.

Although the proportion o ofcial aid in tota l nancing ows to developing countries is diminishing, ODA remains critical or many countries. Many countries are inneed o increased assistance to meet emerging additional challenges such as climate changeand ood price increases. Te Global Partnership or Eective Development was launched

54 Ibid.

ODA is becoming more

ragmented

ODA remains a key

nancing source or low-

income countries

Figure III.6

Low-income countries: concessional nancing, 2003-2016

0.00

2.00

4.00

6.00

8.00

10.00

12.00

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

2 0 1 6

Project loans

Budget support loans

Project grants

Budget support grants

Percent of GDP

Source: IMF, World EconomicOutlook database, October2012; and IMF, “Fiscal Monitor:

Taking stock—progress reporton scal adjustment”, October2012, p.32.

Note: Average or low-incomecountries and ragile stateso Arica, with oil producersexcluded.




at the Fourth High Level Forum on Aid Eectiveness in Busan, Korea in November-December 2011. Te principles o the Global Partnership or inclusive development needto be translated into balanced, eective arrangements benetting all.

Tere is scope to urther improve collaboration and coordination among do-nors and between donor and recipients at both global and national levels. ogether with

ostering the Global Partnership, the Development Cooperation Forum o the UnitedNations Economic and Social Council could be strengthened to ensure that the concepto aid eectiveness—broadened to capture all aspects o development eectiveness—goesbeyond strengthening country ownership by aligning ODA with recipient country’s devel-opment strategies and plans, and increasing the use o their own systems or procurementand nancial management.

South-South cooperation

Te dynamism o South-South trade and nancing is part o the explanation or the rela-tive resilience o developing countries in the recent crisis. Te estimated volume o South-South cooperation nancial ows was calculated to have reached 20 billion in 2010,55

and is expected to grow urther. However, the ull size o South-South cooperation is notknown, as many o the transactions are not ully reported. Te knowledge gaps in South-South cooperation need to be acknowledged and addressed by creating proper reporting procedures that can solve the problem o ragmented and incomplete data.

Most o the resources in South-South ows are in the orm o bilateral pro-grammes o project unding. Unlike traditional aid, South-South cooperation tends to usea multi-pronged development strategy, incorporating trade and investment along with aidto support necessary inrastructure or the broader investment, generally without condi-tionalities.56 South-South cooperation also extends to areas o knowledge-sharing, as a tool or acilitating capacity development and innovation. Much South-South coopera-tion, particularly rom China, appears to be market driven (using market interest rates) inthe area o natural resources, with much o the lending collateralized.57 As such, it is not

an alternative to existing aid.Te Busan outcome document acknowledged the dierence between South-

South cooperation and North-South cooperation in terms o nature, modalities and re-sponsibilities.58 At Busan, countries agreed to orm an integral part o a new and moreinclusive development agenda, in which actors participate on the basis o common goals,shared principles and dierential commitments. South-South cooperation can work inconcert with traditional orms o development aid which, in recent years, have tended toocus more on humanitarian and social interventions, and increasingly, on climate adapta-tion and mitigation.59 Te complementarity o South-South ows, traditional ODA, andother ows should be integrated to enhance the overall development architecture.

55 Sachin Chaturvedi, Thomas Fues and Elizabeth Sidiropoulos, Development Cooperation and

Emerging Powers: New partners or Old Patterns? (Zed Books, 2012), p. 255.56 See United Nations, General Assembly, “Report o the Secretary-General on the state o South-

South cooperation” (A/66/229), para. 15.

57 Kevin P. Gallagher and Roberto Porzecanski, The Dragon in the Room: China and the Future o

Latin American Industrialization (Stanord University Press, 2010).

58 See “Busan Partnership or Eective Development Cooperation”, Outcome document at the Fourth

High Level Forum on Aid Eectiveness held in Busan, Republic O Korea rom 29 November-1

December 2011, paras. 2 and 14.

59 United Nations, General Assembly, “Report o the Secretary-General on the state o South-South

cooperation”, op. cit., para. 53.

South-South cooperation

continues to grow,

mirroring the increasing

global relevance o these

economies




Innovative sources o internationalnancing or development

Nonetheless, shortal ls in traditional ODA and the need or additional and more predict-able international public nancing has led to a search or new unding sources in addition

to South-South cooperation and other ows— not as a substitute or aid, but as a comple-ment to it. Te G20 at the Cannes Summit on 4 November 2011 acknowledged the needto tap new sources o unds or development and global public goods. Te outcome docu-ment o the United Nations Conerence on Sustainable Development (Rio+20), entitled“Te uture we want”, also states: “We consider that innovative nancing mechanismscan make a positive contribution in assisting developing countries to mobilize additionalresources ... (s)uch nancing should supplement and not be a substitute or traditionalsources o nancing.”60

Estimating the amounts raised through innovative nancing mechanisms is a true challenge. Tere is no internationally agreed denition o innovative nancing andas a consequence there are no standardized reporting systems to monitor these ows. As a result, estimates dier according to the mechanisms and sectors deemed as innovative -

nancing. Classication schemes such as those by the OECD and the World Bank dier intheir coverage, and so their estimates are not str ictly comparable. Te 2011 Report o theSecretary-General on Innovative mechanisms o nancing or development61 estimatedthat unds raised through innovative nancing mechanisms or the period 2002-2011ranged between $37 billion and $60 billion.

A recent comprehensive study by the United Nations estimates that when re-stricting the concept o innovative nancing or development to include only mechanismsinvolving public sector involvement linked to international development cooperation,about $8.4 billion in resources are being channelled through innovative nancing mecha-nisms, at best, with only a ew hundred million dollars in new, additional unding raisedannually.62 Te innovative initiatives that have been launched during the past decade,63 such as the solidarity levy on airline tickets, Norway’s tax on CO

2emission rom aviation

uel, the Aordable Medicines Facility - malaria, the International Finance Facility orImmunisation (IFFIm), and Debt2Health, share o proceeds rom issuing new certiedemissions reduction units (CERs) have in large part been used to und global health pro-grammes and to nance climate change mitigation and adaptation. While these initiativeshave successully provided immunizations and AIDS and tuberculosis treatments to mil-lions o people in the developing world, they have not yielded signicant additional und-ing on top o traditional development assistance. Most o the new mechanisms are notdesigned to raise additional resources. Instead, they are designed to restructure existing ODA to better match sources with needs. For example, the IFFIm brings orward utureODA or present expenditure, without providing a net increase in unds. Initiatives suchas the GAVI Alliance, are designed to disburse nancing.

60 See General Assembly resolution 66/288 o 27 July 2012, annex, para. 267.

61 The report concluded that in order to correctly record the scale o revenues raised, an international

agreement is needed on the precise denition and scope o the term. Such an agreed denition

would then provide the appropriate reerence point or standardized reporting and accounting

rameworks, which can be set up or recording reliable and coherent data over time.

62 See World Economic and Social Survey 2012: In Search o New Development Finance (United

Nations publication, Sales No. E.12.II.C.1).

63 World Economic and Social Survey 2012, op. cit.

So ar, only limited

resources have been raised

rom existing innovative

sources o nancing




As discussed in the World Economic and Social Survey 2012 ,64 concentrat-ing external resources on particular diseases may skew health sector policies away romnational health priorities. Tere is a risk that the global ocus on communicable diseasesdoes not coincide with national concerns about other diseases, the development o eec-tive and equitable health systems, and eorts to deal with broader determinants o health

(such as ood security, nutrition and diet, water and sanitation, and living and working environments). Te Leading Group ask Force on Innovative Financing or Health65 recommended ollowing aid eectiveness principles o country ownership in identiy-ing health priorities within comprehensive national health strategies and plans, as wellas investigating on possibilities to support comprehensive national health strategies andplans through resources raised by innovative nancing mechanisms, channelled throughcountry systems where the conditions are in place.

Te Finnish Presidency o the Leading Group on Innovative Financing orDevelopment announced in September 2012 that it is planning to work on clariying andseeking common understanding o the concept o innovative nancing mechanisms andits relationship to ofcial development assistance, as part o the nancing or develop-ment agenda. 66 An internationally agreed denition will be an important step towards

a consistent reporting system that will deliver reliable data on the volume and scale o innovative nance. An agreed denition will also be key in uture evaluations o thetotal volume o resources or development in terms o judging whether new unds are inact additional to existing ODA, and determining the contribution and eectiveness o innovative nancing to meet development objectives.

Innovative mechanisms with larger undraising potential include interna-tional taxes on nancial transactions and on carbon emissions, and the use o IMF’sSpecial Drawing Rights (SDRs). Around $400 billion to $450 billion per year could beraised through a combination o mechanisms. For instance, the World Economic and Social Survey 2012 estimates that a tiny tax o 0.005 per cent on major currency oreign-exchange transactions (dollar, euro, yen and sterling) would generate $40 billion in ad-ditional development resources annually, while broader taxes on nancial transactions

such as trades, bonds and derivatives could yield between $15 billion and $75 billion. Teproposed EU nancial transaction tax is estimated to raise $75 billion per year, althoughlittle, i any, would be or development purposes. A tax o $25 per ton o CO

2emissions by

developed countries could raise $250 billion in revenues or international climate nanc-ing. Proposals or annual issuance o additional SDRs and/or leveraging idle SDRs couldyield at least $100 billion (Box III.4).67

Each o these options is technically easible and economically sensible.Realizing their potential, however, will require international agreement and political will.

As with existing mechanisms, eorts are needed to ensure that resources raised throughnew mechanisms are stable, aligned to recipient countries’ development strategies, andthat delivery is consistent with recipient countries’ priorities and systems.

64 World Economic and Social Survey 2012, op. cit.

65 Leading Group, “Recommendations task orce on innovative nancing or health”, available rom

http://leadinggroup.org/IMG/pd/Recommendations_TFFIS_or_Madrid_En_.pd.

66 Message o the Finnish Presidency to the Leading Group members, 28 September 2012, available

rom http://leadinggroup.org/article1112.html (accessed on 9 October 2012).

67 World Economic and Social Survey 2012: In Search o New Development Finance, op. cit.,

table O.1.

International taxes on

nancial transactions and

carbon, and the use o

Special Drawing Rights,

have large potential




SDRs or development nance?

One potential innovative source o development nance is through the Special Drawing Rights(SDRs) o the IMF. It is important to separate the possible development nancing unctions o SDRs

allocated to developed countries rom their role in increasing the reserves o developing countries. There are two types o proposals or using SDRs or development purposes, as presented in the World

Economic and Social Sur vey 2012.a The rst is based on new annual issues, with the SDR allocations a-vouring developing countries. The proposed additional collective insurance would reduce the needor developing countries to accumulate reserves rom their own resources, thus potentially reeingup space or enhanced developmental investments. Note that while this mechanism should helpincrease global stability, it only indirectly contributes to enhancing existing pools o developmentnance.

The second proposal leverages developed country allocations or development nanc-ing by oating bonds backed by SDRs, rather than by spending the SDRs directly. This more directchannel would leverage the “idle” SDR allocations held by developed and emerging economies withabundant ocial reserves. Idle SDRs jumped rom approximately SDR13 billion to almost SDR200billion ($320 billion) a ter the issuance o SDR250 billion in 2009 (gure). Using a conservative estimate,around $150 billion o existing idle reserves could be utilized to purchase bonds.b I combined with

new allocations o between 150 billion and 250 billion in SDRs every year, amounts in that order maybe usable or nancing long-term development on an annual basis.

An alternative would be to create “trust unds” to leverage SDRs. In this proposal, $100billion in “SDR equity” could be used to back issuance o $1 trillion in bonds, using a leverage ratioo 10 to 1. Assuming a 10-year maturity, this would provide $100 billion or development nancingper year. This could, or instance, meet the initially agreed needs or climate nancing or the GreenClimate Fund. A high leverage ratio, however, exposes bond holders to greater risk, thus raising thecost o borrowing. An additional argument against the use o such leverage is that it breaches theoriginal purpose o SDRs, which were created solely or transactions o a purely monetary nature.Leveraging SDRs in such a way as to expose their holders to risks o illiquidity distorts the purposeor which they were created. The viability o the proposal thus depends on how much risk would beinvolved, and on designing the nancial instrument or leveraging SDRs careully enough to maintainits unction as a reserve mechanism. The risks are urther limited to the extent that the proposal isrestricted to using idle SDRs, which is similar to the existing practice by a air number o countries o

moving excess oreign currency reserves into sovereign wealth unds. These proposals are technicallyeasible, but international agreements and political will are necessary.

Box III.3

a World Economic and Social

Survey 2012: In Search o

New Development Finance

(United Nations publication,Sales No. E.12.II.C.1), pp.31-35.

b Bilge Erten and José

Antonio Ocampo, “Buildinga stable and equitableglobal monetary system”,DESA Working Paper, No.ST/ESA/2012/DWP/118(Department o Economicand Social Aairs o theUnited Nations Secretariat,August 2012).

Millions of SDRs

-

50,000

100,000

150,000

200,000

1 9 7 0

1 9 7 2

1 9 7 4

1 9 7 6

1 9 7 8

1 9 8 0

1 9 8 2

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

2 0 1 0

Total net undrawn SDRs

Source: IMF InternationalFinancial Statistics.




Debt relie and sustainability

Te current debt situation in developing countries does not pose a systemic problem, al-though vulnerabilities remain in some regions and countries,68 particularly the Caribbean,

where two countries (Grenada and Haiti) were classied as in high risk o debt distress,and our (Dominica, Guyana, St. Lucia and St. Vincent and the Grenadines) were inmoderate risk o debt distress as o 9 August 2012.69 Six countries which had received ir-revocable debt relie under the Heavily Indebted Poor Countries (HIPC) Initiative are stillin high risk o debt distress, and there is a risk that continued global weakness will worsendebt sustainability in additional countries. As HIPC and multilateral debt relie initiativesare coming to a close, a new international ramework or addressing uture sovereign debtcrises needs to be on the policy agenda.

Gaps in the nancial architecture or debt restructuring were maniested inearlier sovereign debt crises in emerging markets and developing countries. For debtors,solutions have oten been accompanied by undue lags and, or the most part, have providedtoo little relie, oten leading to uture debt restructurings, jeopardizing the resumption o growth and prospects or keeping debt sustainable. Concerns remain that eorts to reorm

the architecture have been insufcient and inadequate.Te euro area sovereign debt crisis has brought many o these issues to the oreeven more orceully. Te rescue packages by the ofcial sector, including the IMF, areunprecedented in history, putting considerable strains on the balance sheets o the publicsector. Te incremental policy response has yet to ensure a denite and timely end or thecrisis, endangering the global economic recovery and the stability o the global nancialsector. Moreover, there are concerns that such actions may also generate moral hazard. Indebt restructurings this has been shown to lead to sovereign debtors deerring adjustments,to international lenders inadequately pricing risk, and to negotiations leading to lowerdebt write-os, thereby postponing rather than solving the underlying problems o thesovereign debtor.

Given these and related issues, it is time to consider alternatives to ad hoc

resolutions to sovereign debt crises. Tere are several options going orward with propos-als ranging rom those under the voluntary and contractual approach, such as ex antestructures and rameworks or creditor committees, to a statutory approach, or in-betweensolutions such as the setting up o a Sovereign Debt Forum, which would be a neutralorganization with broad participation rom debtors, private creditors and multilateralinstitutions. Te lack o a mechanism to restructure sovereign debt in a air and efcientmanner contributes to global risks, threatening nancing or development and adding topressures on countries to build reserves, and thereby contributing to global imbalances.70

Financing or long-term sustainable

global developmentIn summary, the international nancial system continues to be plagued by volatility and

incentives to short-term behaviour. Volatile capital ows may result in higher volatility o

68 MDG Gap Task Force Report 2012 , op. cit.

69 IMF, “List o LIC DSAs or PGRT-Eligible Countries, as o 9 August 2012”.

70 See “Principles on sovereign lending and borrowing: UNCTAD kick starts endorsement

process”, UNCTAD Inormation Note, 23 April 2012, available rom http://unctad.org/en/pages/

InormationNoteDetails.aspx?OriginalVersionID=20.

The debt situation

has improved in

developing countries, but

vulnerabilities remain

New orms o managing

sovereign debt crisesshould be considered




consumption and boom and bust cycles, and the associated uncertainty may reduce invest-ment and economic growth. In addition, capital account volatility has led to reserve ac-cumulation as a orm o sel-insurance, exacerbating global imbalances, and holding back resources or long-term development investment. Te lack o coordination o monetary policies among developed countries compounds this problem, as evident rom continued

stop-and-go capital ows to emerging markets, which also has the eect o weakening monetary policy responses in developed countries.Proposals and reorms to nancial regulation have been insufcient to address

the problems o volatility and short-termism, including insufcient attention to incen-tives or excessive risk-taking in the banking and the shadow banking systems. Existing proposals and reorms have been mostly ocused on the saety and stability o the banking system, with some attention to risks in the shadow banking system and risks associated

with G-SIFIs (although these have been insufcient). While a ocus on stability is important, the ultimate goal o the global nan-

cial system should be to eectively allocate nance to long-term sustainable developmentin a stable manner. In particular, reorms to banking regulation need to take into accountany impact they may have on growth and access to credit, as well as on stability. Tis

is particularly important in developing countries, where access to credit or productiveinvestment may be more limited. Policymakers in developing countries can choose toimplement elements o Basel III and other regulations that best suit their needs, ratherthan necessarily implementing the u ll package. For example, it might make sense to in-tegrate several o the ideas underlying Basel III—such as countercyclical buers, liquidity ratios, increase in the quantity and, especially, the quality o core capital, adapted to localcircumstances—into national regulatory rameworks. Policymakers should also engage inemergency planning to address the ailure o large international banks operating in thecountry. Requiring banks to have subsidiaries, rather than branches, in the local marketcan help in this area. Alternative measures such as public development banks and directedcredit could also be employed to improve access to credit.

Reorms to the international nancial system need to emphasize both stability

and eective al location o credit or sustainable growth. o that end, reducing global risksthrough a mechanism or resolving sovereign debt and strengthening the global saety netare also key. Reorming and improving nancial regulation in emerging economies anddeveloping countries is an important part o the global reorm agenda to promote the mo-bilization o resources, reduce risks and promote sustainable nancing or development.

Global nancial reorm still

has signicant challenges

ahead in promoting

adequate and stable

nancing or long-term

sustainable development



101

Chapter IV

Regional developmentsand outlook

Developed market economies

Te economies o the developed countries still ace strong headwinds in their struggle

to return to sustained growth. Te Great Recession let a host o troublesome legacies:continued deleveraging by households and rms, which is holding back consumption andinvestment demand; still ragile banking sectors whose lending to the private sector is not

yet normalized; depressed housing markets that put additional strains on the banking system and hold back consumer spending and construction investment; and substantially deteriorated scal balances and rising public indebtedness that Governments are trying

to redress through scal austerity, but which, in already depressed economic situations, isurther pushing up unemployment rates and slowing economic recovery. Unemploymentrates remain high in most developed economies and in some cases have reached disturbing

levels, aecting a quarter or more o the work orce. A large share o workers remains without having had a job or a year or longer, a major social concern that threatens tolower long-run economic growth. Slower growth in emerging market economies, which

had proved a strong support to global growth since the end o the Great Recession, startedto compound these difculties in the course o 2012. Many o these actors have also ledto a tremendous drop in condence by both rms and consumers, leading to postponed

investment and consumption decisions.Most developed countries are responding to these problems by combining a mix

o highly accommodative monetary policy (keeping policy interest rates near zero coupled with a wide variety o unconventional policies) with very tight scal policy in an attemptto bring down budget decits. Tus ar, however, this policy mix has proven insufcient toreinvigorate the recovery and bring down unemployment. Gross domestic product (GDP)

o developed economies as a group is expected to grow by a meagre 1.1 per cent in 2012 and2013 and 2.0 per cent in 2014, well below the pace needed to recover the jobs lost during the Great Recession.

North America

United States: protracted and anaemic growthTe economy o the United States continues to struggle to overcome the deep-rooted prob-lems that suraced with the sub-prime mortgage crisis o six years ago. Per capita income

and employment levels are sti ll below those reached beore the crisis. In early 2012, there were signs o a more robust recovery. Business investment and exports were on the riseand job creation was stronger than expected. However, those promising signs aded later

in the year with the urther deepening o the sovereign debt crisis in the euro area and the




worldwide slowdown o economic activity. At home, increasing concerns over the looming

scal cli cast a darkening shadow over the domestic economy (see chapter I). As these

actors continue to linger, growth prospects or the United States economy remain slug-

gish or 2013. Nascent signs o recovery o the beleaguered housing sector orm a brightspot between the darkening clouds. Also, additional policy support is expected to come in

the orm o the new round o quantitative easing launched by the United States FederalReserve (Fed), which committed to continue purchasing mortgage-backed securities until

the employment situation improves substantially. In the United Nations baseline outlook,

GDP growth is orecast to be 1.7 per cent in 2013, lower than the already anaemic paceo 2.1 per cent estimated or 2012 (see table I.1 and annex table A.1). Risks remain or an

even worse scenario in the short run, emanating rom the possibilities o a scal cli, ur-

ther eruption in the euro area debt crisis and a hard landing in large developing economies.

Assuming these downside risks can be averted, the economy o the UnitedStates is expected to gain some strength in the medium term. Te process o deleveraging

seen in the household and nancial sectors over the past our years is expected to ease in

2014. Tis would help improved lending conditions and could underpin stronger invest-

ment and consumption spending.

Business investment was a key driver o the moderate recovery o the pasttwo years, growing at about 8.6 per cent or 2011 and 7.5 per cent or the rst quarter

o 2012. However, as rms have become more risk averse amid the heightened economic

uncertainties at home and abroad, investment demand has weakened notably. Growth o

investments in business equipment and sotware is expected to slow rom 11 per cent in

2011 to 7 per cent in 2012 and urther to 6 per cent in 2013, while investment in businessstructures is expected to slow to below 4 per cent in 2013.

Ater ve years o slump, the housing sector is showing signs o recovery.

According to the Federal Housing Finance Agency (FHFA) price index, house prices are

estimated to increase by more than 4 per cent in 2012. Inventories o unsold homes are

alling and housing permits and starts are on an upward trend. Residential investment has

been on the rise in 2012 and is expected to continue growing in the ollowing years, drivenby population growth and very low interest rates.

Nonetheless, consumer demand is expected to remain subdued in the short

run as households continue to ace constraints, including the lingering need to reduce

debt burdens, persistent high unemployment, and uncertainties about possible shits intax policy in the coming years. Payroll employment increased by slightly more than 1 per

cent in 2012, exceeding labour orce growth, but not enough to make up much o the

job loss rom the Great Recession (gure IV.1). Te unemployment rate stayed above 8

per cent or most o 2012, but dropped below 8 per cent in the nal months o the year.

Te participation rate remains at a low o about 63 per cent, while the share o long-termunemployed (those unemployed or more than six months) is at a historic high o about

40 percent, well above the peak o 25 per cent observed in previous post-war recessions. In

the outlook, employment is expected to continue growing at a moderate pace, keeping theunemployment rate above 7 per cent by the end o 2013 (see annex table A.7).

Ination, as measured by the headline consumer price index (CPI), moderatedin 2012 to about 2.0 per cent rom 3.1 per cent in 2011 and is expected to retreat urther

in 2013 to 1.3 per cent (see annex table A.4).

Exports were another driver o output growth over the past two years, reach-

ing about 11.0 per cent in 2010 and 6.7 per cent in 2011. However, it has moderated

Business investment ishindered by heightened

risk actors

The housing sector is

recovering slowly and

residential investment is

picking up

Poor job market restrains

consumption



103Regional developments and outlook

signicantly in 2012, slowing to 3.6 per cent or the year as a whole. Demand or UnitedStates exports declined in Europe and slowed markedly in large developing countries.Import growth has also decelerated at a similar pace. In the outlook or 2013, exports andimports are both expected to grow by around 3.5 per cent. Te current-account decit inthe balance o payments ell to about 3 per cent o GDP in 2012 and is orecast to narrow slightly in 2013.

Te monetary policy stance remains very accommodative in the United States.In September 2012, the Fed announced that it would keep the target range or the ederal

unds rate between 0.0 and 0.25 per cent through mid-2015, providing an anchor or theexpectations o businesses and households. Te Fed also decided to extend the averagematurity o its holdings o securities through 2012 and to maintain its existing policy o reinvesting principal payments rom its holdings o agency debt and agency mortgage-backed securities. In addition, the Fed launched a new round o quantitative easing topurchase agency mortgage-backed securities at a pace o $40 billion per month until thelabour market has improved substantially—meaning, technica lly, that such purchases willmost likely continue through mid-2014.

Fiscal policy, in contrast, is expected to tighten urther in the outlook. R ealederal government spending on goods and services is expected to all by about 3 per centin 2013 and 2014. Spending had already been curtailed by 2.5 per cent in the previoustwo years. More importantly, signicant uncertainty remains about how Congress will

decide on the key components o the stimulus measures o the past years, including theexpiration o the payroll tax cut and emergency unemployment insurance benets. Tere isequal uncertainty about the ate o the Bush tax cuts and the automatic spending cuts that

would come into eect in the absence o Congressional agreement (see the “Uncertaintiesand risks” section in chapter I). In the baseline, it is assumed that the 2 per cent payrolltax cut and emergency unemployment insurance benets are extended or 2013, and thenphased out gradually in subsequent years. It is also assumed that the automatic spending

Monetary policy continues

to aggressively support

growth

The risk o a scal cli was

a major cause o enhanced

uncertainty during 2012

Figure IV.1

United States: Post-recession recovery o employmenta over ve decades

Percentage deviation of employment from the pre-recession peaks

-6

-5

-4

-3

-2

-1

0

1

0 6 12 18 24 30 36 42 48 54

1980 2001 1990

2007

1981

Months since the beginning of recession

1974

Source: UN/DESA, based ondata rom the United StatesBureau o Labor Statistics.

a Monthly seasonally adjustedlevel o civilian employment.




cuts now scheduled to begin in January 2013 will be delayed, giving more time or the new Congress and re-elected president to produce a package o spending cuts and tax increases,including a combination o cuts in Medicare, Medicaid and Social Security and increasesin income taxes, eective in 2014. Te Bush tax cuts are assumed to be extended during 2013-2014.

Canada: economy losing momentum

Te Canadian economy started 2012 on a positive note, but lost momentum during theyear, as its two drivers o growth, business investment and exports, weakened visibly. Inthe outlook, declining government spending and residential construction investment willcontinue to be a drag on economic activity in the short run. Weaker global economicprospects will lower demand or Canadian exports. GDP is orecast to grow by 1.5 per centin 2013, down rom an estimate o 1.8 per cent in 2012. Some strengthening is expected in2014, as GDP is orecast to increase by 2.8 per cent. Te rate o unemployment is expectedto stagnate at 7.4 per cent in 2013, the same level as in 2012. Ination is orecast to stay below 2 per cent.

Te Bank o Canada is expected to maintain its interest-rate target at the cur-rent level and only allow or a gradual increase rom mid-2014. Government spending isexpected to be retrenched urther as part o scal consolidation eorts that aim to yielda budget surplus by 2015. Budget plans implemented in 2012 also include incentives orinvestments in research and development and capital equipment, in eorts to buttressproductivity growth over the medium and long run.

Developed Asia and the Pacic

Japan: economy back in recession

In 2012, Japan’s economy made a rugged recovery rom the 0.7 per cent decline in theprevious year. Growth was strong in the rst quarter o 2012, but the momentum was lostshortly thereater and the economy ell back into recession, in the second hal o the year.GDP growth or 2012 as a whole is estimated at a meagre 1.5 per cent. In the outlook,

Japan’s economy is expected to climb out o the recession, but GDP growth will remainvery weak at 0.6 per cent in 2013 and 0.8 per cent in 2014 (see table I.1 and annex table

A.1). At this pace, it will likely be 2015 beore Japan’s economy returns to its size preceding the Great Recession in 2007.

A much weaker trade perormance has had a strong, economy-wide impact.Since 2011, GDP shrank during all our quarters against the backdrop o steep declines innet exports (gure IV.2). Te interruptions to industrial production caused by the earth-

quake and tsunami in March 2011 and the ooding in Tailand during the ourth quartercritically inuenced these trends. Tese adverse actors were compounded by weaker exter-nal demand, the appreciation o the Japanese yen, and increased uel imports or electric-ity generation ater the stoppage o nuclear power plants. In 2011, Japan’s trade balanceshowed a decit or the rst time in 20 years. It is expected to remain in decit in 2012 andthe outlook period. Te current account o the balance o payments continued recording a surplus, however, as a result o positive investment income earned on the country’s large

Deteriorating trade

seriously impacts the

entire economy




stock o oreign assets. Te external surplus stood at 1.5 per cent o GDP in 2012 and isexpected to remain at this level during 2013 and 2014, much smaller than the surplusesrecorded beore the global economic crisis.

Private consumption grew by 1.9 per cent in 2012, helped by the post-disasterreconstruction and boosted by government incentives to encourage the purchase o energy-efcient automobiles. Consumer demand is expected to slow considerably, however, withthe broader economic slowdown, the end o the automobile subsidy programme, scheduledcuts in pension benets,1 and the planned increase in the consumption tax rate. Private

consumption is expected to grow at a meagre 0.1 per cent in 2013 and 0.2 per cent in 2014.During 2012, reconstruction in the disaster-aected areas generated the

strongest investment growth in 15 years. In 2013 and 2014, however, xed investment isexpected to decelerate sharply to 1.7 per cent and 1.5 per cent, respectively. Ater growing by 1.3 per cent in 2012, government consumption is expected to decelerate to 0.4 per centin 2013 and 0.1 per cent in 2014. Te scal tightening is the result o policymakers’ con-cerns over the budget decit and the phasing out o post-disaster reconstruction spending.

Although Japan was in recession in 2011, the open unemployment actua lly declined to 4.6 per cent, down rom 5.1 per cent in the previous year. A shrinking labourorce—now a long-term trend—is the main actor explaining the decline. Employmentis expected to grow only slowly over the orecast period and the unemployment rate isexpected to stay around 5.0 per cent over the outlook horizon (see annex table IV.7).

Nominal wages increased in 2010, but declined by 0.2 per cent in 2011 andstill urther in 2012. Ater two years o continuous increase, real wages declined in 2012as a result o the lower nominal wage and weakened deation. Deationary conditionsstill prevail, although the decline in consumer prices moderated in both 2011 and 2012as energy prices rose. Given the projections o tepid growth in the outlook, deationary pressure on core consumer price is expected to persist in 2013 and 2014, although it wil l be

1 Beginning in April 2013, the pension age in Japan will increase gradually rom 60 to 65.

Despite the weak growth

outlook, unemployment

rates are expected to

remain stable

Deation continues

-5

-4

-3

-2

-1

0

1

2

3

4

2 0 0 8 Q 1

Q 2

Q 3

Q 4

2 0 0 9 Q 1

Q 2

Q 3

Q 4

2 0 1 0 Q 1

Q 2

Q 3

Q 4

2 0 1 1 Q 1

Q 2

Q 3

Q 4

2 0 1 2 Q 1

Q 2

Q 3

Residual

Net exportsGross investmentGovernment consumptionPrivate consumptionGDP

GDP

Quarter-over-quarter percentage change

Figure IV.2

Japan: Contribution o major expenditure categories to the growth o GDP

Source: UN/DESA, based ondata rom Japan Economicand Social Research Institute,available rom http://www.esri.go.jp/index-e.html(accessed on13 November 2012).




less pronounced than during the 2000s as the output gap has narrowed with post-disaster

reconstruction. In 2014, headline consumer price ination is expected to accelerate to 1.8

per cent, owing to the planned increase in the consumption tax rate (see annex table A.4).

In 2012, the Japanese parliament ratied a package o reorms o the social se-

curity and tax systems. Te tax reorms include a change in the tax code that will enhance

the tax base, and the consumption tax rate will be increased rom the current level o 5 percent to 8 per cent in April 2014, and urther to 10 per cent in October 2015. Te social

security reorms involve extension o the retirement age, requirements or rms to hire

workers older than 60, and cuts in pension benets. According to Government estimates,

the tax increase and the other elements o the package would reduce the budget decit by

more than 4 per cent o GDP over the medium run.

Te Bank o Japan (BoJ) has kept its policy interest rate near zero or several

years already and is expected to continue to do so throughout the orecast period. It also

adopted the practice o ination targeting on 14 February 2012, with the target currently

set at an annual change o 1 per cent in the CPI. In the baseline outlook, it is assumed that

the predicted acceleration in ination resulting rom the consumption tax increase during

2014 will not induce the BoJ to raise its policy rate. During the rst ten months o 2012,

the BoJ urther expanded its Asset Purchase Programme to ¥91 trillion and extended

the time rame or implementation rom mid- to end-2013. Te quantitative easing is

expected to lower long-term interest rates urther. Te BoJ also introduced a new element

o monetary easing. Under the new ramework, depository inst itutions can ask the BoJ to

provide the ull amount o the net increase in lending to the private sector. Te cost o this

unding is initially set to the level o the overnight call rate, which is assumed to remain

between o 0.0-0.1 per cent or a ew years.

Australia: recovering rom the worst ooding in history

Austra lia suered rom devastating oods in 2010 and early 2011, which led to a sharp

decline in exports in 2011. Nevertheless, the gradual recovery o coal production and

investment or reconstruction and new production capacity more than compensated or

these losses, such that GDP increased by 2.3 per cent. Driven by a solid expansion in ex-

ports and robust private consumption spending, and given the trend o continuing popu-

lation growth, GDP growth rebounded urther to 3.0 per cent in 2012 and is orecast to

sustain this pace at 2.6 per cent and 3.3 per cent or 2013 and 2014, respectively. In 2012,

exports grew by 5.4 per cent, acilitated by new production capacity in the mining sector.

However, with the global economic slowdown, export growth is expected to decelerate to

3.4 per cent and 3.6 per cent in the coming two years. Investment in the mining sector is

likely to expand at a robust pace, but will most likely remain tepid in other sectors.In July 2012, a carbon tax was introduced in Australia, which temporarily

lited ination to an annualized rate o 2 per cent, the lower bound o the ination target

zone set by the Reserve Bank o Australia. In November 2011, the central bank eased

monetary policies by lowering policy interest rates ater two years o policy tightening.

Low ination, the weak external environment and declining housing prices motivated the

policy shit.

Fiscal policy is targeted

to reduce decit

Bank o Japan adopts

ination targeting and

continues monetary easing




New Zealand: earthquake reconstruction boosts growth

In 2011, New Zealand suered rom a severe earthquake in the Canterbury region or

the second time in recent years. Te delayed reconstruction activity is expected to push

the average investment growth rate to around 7 per cent during 2012-2014. In mid-2012,

the Government was aiming to balance the budget by mid-2015, but was also expectedto allocate more unds or reconstruction in the short run. Exports rom New Zealand to

developing Asia and Australia (mainly ood and l ive animals) are expected to see moderate

growth in 2013 and 2014. Overall, GDP is expected to grow by 2.1 per cent in 2012 and

by 2.1 per cent and 2.7 per cent or 2013 and 2014, respectively.

Europe

Western Europe: the debt crisis and its reverberationscontinue to depress the region

Te euro area sovereign debt crisis and attendant scal austerity programmes remain thedominant orces depressing growth in the region. Coupled with slowing external demand

and high oil prices, this portends bleak prospects in the outlook. Te rst quarter o 2012

saw a stabilization o economic activity in the euro area as a whole ater the sharp drop in

activity experienced at the end o the previous year. In the remainder o 2012, however,the euro area economy witnessed continuous deterioration, with negative quarterly rates o

growth in the second and third quarters—a technical recession—and an expected sharp

drop in GDP in the ourth quarter. For the year as a whole, GDP is expected to decline by

0.5 per cent in 2012 and, given the weak starting point and continuing negative pressures,growth is expected to reach only 0.3 per cent in 2013 and strengthen marginally to 1.4 per

cent in 2014 (annex table A.1).

Business, consumer and nancial market condence has closely ollowed theperceived policy successes and ailures in moving the euro area sovereign debt crisis towards

resolution (gure IV.3). At the end o 2011 and in February 2012, the European Central

Bank (ECB) conducted two large-scale long-term renancing operations (LRO). Tese

operations were successul in halting the liquidity crisis in the banking system and, ora ew months, tensions abated and condence improved. But tensions returned not long

ater, with bond yields or the crisis countries surging upwards, and condence resumed

its downward trend. wo policy initiatives were announced later in the year: the OutrightMonetary ransactions (OM) o the ECB, under which it would make unlimited pur-

chases o the sovereign bonds o countries under stress, but with the stipulation that the

country ormally request assistance; and an agreement by Heads o State that would allow

the use o the new rescue acility, the European Stability Mechanism (ESM), to directly

recapitalize banks, thus breaking the link between bank recapitalization and governmentdebt—again, with the condition that a new banking supervision entity be created rst.

Tese initiatives were successul at cooling tensions as bond yields or Italy and Spaindropped signicantly. Te eorts have been undermined, however: in the case o OM,

by reluctance to request ormal assistance; and with the use o ESM or bank recapitaliza-

tions, by subsequent clarications that legacy bank problems would not be covered, which

then meant that the l ink between banking problems and sovereign debt was not broken.

Condence is severely

hit by the continuing

sovereign debt crisis




Tese issues, coupled with the increasing realization that an agreement on a banking un-

ion may take a considerable period o time (exacerbated by a dismal economic situation

with many countries in recession and unemployment rates in some cases at record highs),

have been urther reasons or continued concerns.

Other measures taken during the year include agreement on a new Fiscal

Compact—essentially a beeed-up version o the Stability and Growth Pact—and the

nal approval by all member states o the new rescue und, the ESM, which is now op-

erational. aken together, these policies address many o the deects in the original design

o the EMU by adding a lender o last resort, a banking union and a more credible Fiscal

Compact. But they do not address the key short-term issues o restoring growth in the

region or how to put the crisis countries on a more probable path to scal sustainability.

Te condence crisis has aected al l countries in Western Europe and together

with trade eects and nancia l market contagion, it has reduced the growth divergence

previously in evidence. At least ve economies are now in technical recession. Italy’s GDP

is expected to decline by 2.4 per cent in 2012 and 0.3 per cent in 2013 and Spain’s by 1.6

per cent and 1.4 per cent, respectively. Te other countries in recession are Cyprus, Greece

and Portugal. Not all economies are equally aected. Germany’s economy has slowed sub-

stantially and is expected to grow by only 0.8 per cent in 2012 ater 3.0 per cent in 2011,

with only a marginal rise to 1.0 per cent in 2013. France narrowly averted recession with

a slight up-tick in GDP growth in the third quarter. Output growth is expected to reachonly 0.1 per cent or 2012 as a whole and 0.3 per cent in 2013. Outside o the euro area, the

economy o the United Kingdom o Great Britain and Northern Ireland exited recession

in the third quarter, boosted by the Olympic games, but nonetheless GDP is expected to

contract by 0.3 per cent or 2012. In the baseline orecast, only a slight rebound to 1.2 per

cent is expected or 2013, as exports pick up (aided by a depreciation o the currency) and

domestic demand solidies.

Depressed condence

provides another route

or crisis contagion across

Western Europe

-30

-25

-20

-15

-10

-5

0

5

10

2010M01 2010M05 2010M09 2011M01 2011M05 2011M09 2012M01 2012M05 2012M09

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Industrial confidence indicator (left-hand scale) Consumer confidence indicator (left-hand scale)

Spanish 10-year government bond yield

(right-hand scale)

Italian 10-year government bond yield

(right-hand scale)

Figure IV.3

Condence in the euro area and selected 10-year bond yields

Source: EuropeanCommission and JPMorgan

Chase.




Consumption is expected to remain weak in the outlook, but with signicantdierences across the region. Austerity programmes depress consumption but vary in inten-sity across countries. Te strength o labour markets is another key actor, in terms o bothemployment and wages, and also varies signicantly. Te level o uncertainty stemming rom the ebbs and ows o the euro area crisis is having a more uniorm impact across the

region, as consumer condence, which had been improving earlier in the year, has sincedeclined sharply. For the euro area, consumption is expected to decline in both 2012 and2013, but this is dominated by the large declines in only some countries, particularly thosein crisis, while other countries are expected to see some support rom consumer spending.

Investment spending also remains weak in the region with little prospect or a sustained upturn given weak demand, elevated uncertainty rom the sovereign debt crisis,and unding difculties, particularly in the crisis countries. Fixed investment declinedsharply in the euro area in 2012, with only a slight rebound expected in 2013 and 2014.Both domestic and oreign demand remains anaemic. Industrial condence has been hitbadly by the sovereign debt crisis. Although rising in the early part o 2012, renewed ten-sions rom the crisis led to urther sharp declines throughout the year. Capacity utilizationpicked up slightly in the rst quarter o 2012, but then dropped in the subsequent quar-

ters and remains low by historical standards. Bank lending to non-nancial corporationscontinued to decline in the third quarter, owing both to declining demand, as rms cutback on investment spending, and to supply conditions. Despite better access to retail and

wholesale unding, banks tightened credit standards urther in the third quarter and areexpected to do so again in the nal quarter o the year, owing to a perceived increase inrisk.2 Funding conditions do vary across the region, however. In the crisis countries, con-ditions are extremely tight as their banking systems remain under tremendous pressure,but conditions are much easier in other countries. Housing investment remains a majordrag on activity in some countries, particularly those that experienced a housing bubbleand subsequent collapse, such as Spain and the United Kingdom.

Exports slowed noticeably during the year, given the extremely weak intrare-gional import demand, compounded by weaker extraregional demand, particularly romEast Asia. Te latter had been an important source o export growth or countries special-izing in capital goods. In the euro area, some support to export perormance (and muting o imports) is coming rom the depreciation o the euro, but lackluster demand is currently the dominant orce.

Meagre growth in some countries and recession in others has wreaked havocon labour markets. In the euro area the rate o unemployment climbed to 11.6 per cent inSeptember, up 1.3 percentage points rom one year ago and another record or the EMUera. Signicant regional dierences remain. In Greece and Spain, unemployment is above25 per cent and in Portugal above 15.7 per cent—countries which have all been subjectto harsh austerity programmes. At the other extreme are Austria, Germany, Luxembourg and the Netherlands where rates o unemployment are nearer to 5 per cent. Yet, given the

only marginal pick up in activity expected rom mid-2013 and into 2014, all countries areexpected to see at least some increase in unemployment in 2013 beore gradually coming down, with an estimated average o 11.3 per cent in the euro area in 2012, 11.8 per cent in2013 and 11.6 in 2014 (see annex table A.7).

Headline ination, as measured by the Harmonized Index o Consumer Prices(HICP), has been above 2 per cent since December 2010 (the upper bound o the targeted

2 European Central Bank, “The Euro area bank lending survey: 3rd Quarter o 2012” (October).

Consumption is held back

by low condence and

harsh scal austerity

Investment spending

stymied by a lack o

demand and heightened

uncertainty

Unemployment continues

to rise, in some cases to

EMU record levels




ination rate set by ECB). It reached 2.5 per cent in October 2012, boosted in part by

high energy and other commodity prices as well as by administered prices (including rises

in VA rates). Core ination, which abstracts rom energy, ood, alcohol and tobacco to

measure underlying inationary pressures, has been much lower, at about 1.5 per cent, with no evidence o upward creep. In the outlook, headline ination is expected to dri t

down slowly, averaging 2.2 per cent in 2012, 2.0 per cent in 2013 and 1.9 per cent in 2014(see annex table A.4). Given the poor outlook or growth, the output gap will remain large,

wage growth, while picking up modest ly, will remain contained, and the assumptions on

oil and other commodity prices will yield little impact rom these sources.Fiscal policy in the region continues to be ocused on reducing scal imbal-

ances. Government budget decits o euro area members declined on average rom 6.0 per

cent o GDP in 2010 to 4.1 per cent o GDP in 2011, and urther in 2012 to near 3.0 per

cent. Most countries have been subject to Excessive Decit Procedures (EDP) since theend o the Great Recession, which typical ly requires a minimum o 0.5 per cent correction

in the decit-to-GDP ratio per annum with a specied time rame or return to balance.

Te situation in the crisis-aected countries is ar more severe, with signicantly higher

targeted annual consolidations and longer time periods o austerity necessary. Given that

these targets are established in terms o ratios to GDP, growth shortalls have requiredadditional austerity measures, thereby adding pressure to the continued downward spiral,

especially in the debt-ridden crisis countries. In the outlook, it is assumed that existing

scal plans are implemented so that growth shortalls will not be made up; rather, the time

periods or consolidation are lengthened.

Since the crisis erupted, the ECB has relied on unconventional policies, leaving its main policy interest rate at 1 per cent. Tese policies included: renancing operations

conducted at xed rates with unlimited supplies o liquidity, at increasingly long ma-

turities and with reduced collateral requirements; provision o oreign currency liquidity;

purchases o covered bonds; and, more controversially, purchases o sovereign debt in sec-

ondary markets under the Securities Markets Programme (SMP). At the end o 2011 and

in February 2012, the ECB introduced a bold new policy, two large-scale LROs. In July,it returned to conventional policy, lowering all three o its policy rates by 25 basis points,

bringing its main renancing rate to 0.75 per cent and the deposit rate to 0 per cent.

In September, the ECB announced a new policy initiative dubbed “Outright Monetary

ransactions” (OM), whereby it would make potentially unlimited purchases o selectedcountry bonds and hold them or a potentially unlimited duration in order to reduce the

yields, but with the stipulation that the country must rst ormally request assistance and

accept conditionality (this now supersedes the SMP, which has ended).

In the outlook, given the backdrop o recessionary conditions throughout the

rest o 2012 and only very minor pick-up expected in 2013 and 2014, policy is expectedto remain highly accommodative. For conventional policy, it is assumed that the ECB

will cut the minimum bid rate by another 25 basis points, but hold the deposit rate at 0

per cent. It is also assumed that the new OM will remain in place throughout the ore-cast period, and will be activated i necessary to maintain appropriate bounds to selected

country bond yields.Key risks to the orecast continue to be weighted to the downside. Te sovereign

debt crisis could are up signicantly, impacting on bank solvency and depressing con-

dence. Governments may be orced to make up or growth shorta lls by introducing new

austerity measures. Oil prices could surge again. On the positive side, external demand,

Fiscal austerity dominates

the macroeconomic

policy stance

The ECB continues to

be active in attempts to

combat the sovereign

debt crisis




particularly rom East Asia and perhaps the United States, may pick up earlier and withmore vigour than anticipated, giving a boost to exports and investment. ensions may

subside in the region ollowing more convincing implementation o already announcedpackages o policy measures, which would boost condence.

The new EU members: “muddling through” continues

Te tenuous economic recovery that emerged in the new European Union (EU) memberStates in 2010 has continued to weaken throughout 2012. Although some countries o theregion, such as the Baltic States and Poland, started the year with solid rst quarter economic

results, the ongoing troubles in the euro area, which still remains the major export marketor the region and the biggest source o oreign direct investment (FDI), has led to a visibledeterioration o the region’s current economic prospects. Some o the new EU members,

such as the Czech Republic, Hungary and Slovenia, saw negative annual economic growth.Te impact o the unavourable trade environment in 2012 has been urther

aggravated by the ongoing scal austerity measures and, consequently, by suppressed do-

mestic demand and weak labour markets. Most o the scal space the new EU members

possessed has been exhausted and some countries, such as Poland, ace constitutionallimits on the size o public debt. Te search or alternative markets by portolio investors

has led to more avourable borrowing terms or the new EU members in 2012. However,the commitment to scal discipline remains one o the prerequisites or the low sovereigndebt yields o those countries and urther squeezes scal policy space.

New EU banking regulations compelled the parent EU-15 banks operating inthe region to improve their capital adequacy ratios. Tis led to continued deleveraging inthe new EU member States in 2012, partially mitigated by the actions o the ECB. A serious

distress in those parent banks could still lead to a severe credit crunch in Eastern Europe.Te new Vienna Initiative, agreed in early 2012 to prevent such a development, does notcontain the same commitments as the earlier initiative by the same name adopted in 2009.

Te persistent weakness in external and domestic demand led to a slowdown inGDP growth in 2012. Aggregate GDP o the new EU members expanded by 1.2 per centin 2012 and growth will accelerate to a still moderate rate o 2.0 per cent in 2013 amid

numerous uncertainties and risks.Economic perormance varied in the region in 2012. Te biggest economy,

Poland, is relatively sheltered rom the euro area troubles, having a smaller export-to-GDP

ratio compared with its regional peers and exhibiting extensive trade ties with the RussianFederation. In 2012, the country beneted rom the massive inrastructure spending re-lated to the Euro 2012 Football Championship. However, cooling domestic demand and

the need or scal consolidation slowed the economy in the second hal o the year, withannual growth expected to be below 3 per cent in 2012 and in 2013. For other countriesin Central Europe, industrial output in 2012 was held back by altering external demand.

Te automotive industry slowed in the second hal o 2012. Economic growth prospectsor those exporters in 2013 will largely depend on the developments in the euro area.Te economies o the Baltic States may grow at about 3 per cent in 2013. Bulgaria and

Romania may ace additional risks as they have stronger trade, nance and investmentlinks with Greece and Italy.

Price pressures in the region that resuraced in mid-2012, triggered by higher

oil and ood prices, subsided later in the year. Although headline ination rates in a number

Both external and internal

demand remain weak

The region exhibits

divergent trends in 2012




o cases overshot the respective central banks’ targets, this was mostly driven by external

shocks and increases in indirect taxes to meet scal revenue targets. Core ination remained

weak, with the exception o the Baltic States and Poland. Provided that economic activity

picks up in 2013, inationary pressures may strengthen, but headline ination in 2013 is

likely to be lower because o the base eect o one-o price increases in 2012.

Fiscal policies have been ollowing a consolidation path to reduce the budgetdecits in the medium term to the required benchmark o 3 per cent o GDP, as stipulated

by the EU Stability and Growth Pact. Lower than projected economic growth orced

scal authorities to revise their budgets in mid-2012, resorting to new revenue-enhancing

measures, such as additional increases in indirect and other taxes. Tose policies improved

sentiment in international capital markets but are contractionary, at least in the short term.

By contrast, monetary policies remained expansionary during 2012. Benchmark

interest rates were cut in the Czech Republic, Hungary (where the central bank prioritized

growth over ination), Latvia and Poland. Nevertheless, credit markets remain stagnant,

although banking sectors in some o the new EU members recorded prots in 2012 (gure

IV.4). Both demand or credit and credit supply remain weak, as households continue to

repay their debt, businesses are cautious, and banks, acing reduced access to cross-border

unding, clearly rera in rom risky lending. Accommodative monetary policy may, how-

ever, support the region’s exports through weaker exchange rates.

Labour markets, which recovered in 2011 most notably in the Baltic States, su-ered some setbacks in 2012 as the unemployment rates slightly increased, partly reecting

reductions in the size o the public sector. Te ongoing scal consolidation is complicating

Governments’ eorts to address labour market issues, although public works programmes in

some countries, such as Hungary, created some employment or low-skilled workers. Much

o the unemployment in the region is long term, requiring much stronger policy action.

The impact o scal policyis contractionary

Labour markets requirepolicy action

Figure IV.4Net domestic credit in selected new EU member States, 2008-2011

Source: World Bank.

-20

-10

0

10

20

30

40

50

CzechRepublic

Estonia Latvia Lithuania Hungary Poland Slovenia

2008

2009

2010

2011

Annual percentage change




In line with the deceleration in global trade growth, the expansion in exportsand imports o the new EU members weakened in 2012. External demand or manu-actured goods sotened most notably, which in turn weakened demand or importedinputs by export industries. Import demand slowed urther as a result o weaker domesticdemand. Nonetheless, volume growth rates o both exports and imports remained mostly

positive. Most export gains came rom trade with non-EU partners such as the RussianFederation and Ukraine. In 2012, the current account was in surplus in Hungary andSlovakia and in decit in other countries in the region, with a similar situation being expected in 2013.

A protracted recession in the EU-15, which would delay the recovery o FDI,remains the biggest risk aced by new EU members. Other downside risks include theinability to prevent a sharp cut in cross-border lending and an excessively contractionary impact o scal tightening.


In the difcult global environment o 2012, the economies o the Commonwealth o Independent States (CIS) and South-Eastern Europe exhibited divergent trends. Te ag-gregate GDP o both regions expanded by 3.5 per cent in 2012, but this gure maskssignicant variations. While the economies o the CIS continued to grow, although at a lower rate as compared with 2011, South-Eastern Europe saw another year o economicstagnation with declining output in Croatia and Serbia. Commodity exports and robustdomestic demand supported growth in the key economies o the CIS, while worker remit-tances, mainly rom the Russian Federation, played an important role or the smallereconomies o that area. For the countries o South-Eastern Europe, both external demand,hit by the crisis in the euro area, and internal demand, undermined by scal austerity policies and stagnant labour markets, remained weak. Both country groups continue toace serious economic challenges, such as diversication o output in the CIS and reindus-

trialization o South-Eastern Europe. In line with the expected mild recovery in the globaleconomy, growth in the aggregate GDP o transition economies is projected to accelerateto 3.6 per cent in 2013, as economic activity in South-Eastern Europe improves.

South-Eastern Europe: countries ace another year o economic stagnation

Real economic activity in South-Eastern Europe in 2012 remained below that achieved in2008 beore the onset o the global nancial crisis. Ater a very weak recovery in 2010 and2011, the region’s growth turned negative in 2012 and is orecast to remain below trendin 2013 owing to weakness in both external and internal demand. As a result, exceed-ingly high rates o unemployment that plagued the region even beore the global crisisare expected to continue or at least several more years, i not longer. In 2012, spring oods, summer droughts and orest res destroyed crops, especially corn and potatoes,and physical inrastructure throughout the region. Te major risks to the orecast are tothe downside as the region’s strong nancial, trade and remittance linkages with some o the most troubled countries o the EU, such as Greece and Italy, make it quite vulnerableshould there be a urther deterioration in the euro area. FDI inows into these economiesremain depressed at about hal their levels prior to the crisis. Tis decline in investment is

Trade o new EU members

weakened in 2012




an important actor in explaining not only the currently low growth and high unemploy-ment rates, but also the airly weak medium- to long-run growth prospects. Te aggregateGDP o South-Eastern Europe declined by 0.6 per cent in 2012 and is orecast to recoveronly modestly to 1.2 per cent in 2013. In 2013, Croatia is set to join the EU. Te country’sadmission to the Union should bring certain economic benets, through the removal o

the last trade barriers and stronger FDI inows, as well as larger nancial assistance.Tere has been considerable variation in the economic perormance o the South-Eastern European economies. Albania and the ormer Yugoslav Republic o Macedonia have both experienced solid growth since 2010, although it moderated signi-cantly in 2012 as growth in the EU declined. Among the other our economies, Bosnia and Herzegovina and Montenegro recorded growth near 0 per cent in 2012, while Croatia and Serbia experienced a recession.

Although the economies o South-Eastern Europe were quite negatively im-pacted by the global crisis o 2008-2009, their unemployment rates did not increase ini-tially as much as might have been expected. Likewise, their unemployment rates have notdeclined appreciably with the recovery and are expected to stay elevated or many years. InBosnia and Herzegovina and the ormer Yugoslav Republic o Macedonia, unemployment

is above 30 per cent, while in Serbia, it is above 25 per cent.3

Te unemployment in South-Eastern Europe is mostly structural; active labour market policies, improved educationand training acilities, and more incentives or investment would be required—in additionto aggregate demand policies—to reduce it.

Ination has been moderate in the region, with rates in the 2 to 4 per centrange, although in mid-2012, inationary pressures intensied ollowing a spike in oodand energy prices, or some one-o eects such as rises in VA rates or increases in admin-istratively controlled utility prices. As the impact o one-o actors tapers o, ination inthe region in 2013 should be one hal o a percentage point weaker.

Fiscal policies in 2013 will hardly be able to support growth, as mostGovernments aim to consolidate public nances. Faced with lower-than-projected eco-nomic growth in the rst hal o 2012 and lower-than-anticipated revenue intake, some

Governments in the region had to revise their annual budgets and introduce additionalmeasures to meet scal targets. For Bosnia and Herzegovina, which obtained a new stand-by loan rom the International Monetary Fund (IMF), scal policy should also meet theconditions set by the Fund.

Te conduct o monetary policy in South-Eastern Europe is constrained by unilateral “euroization”, which is the case in Montenegro, or by ormal or inormal cur-rency pegs. In the countries with exible currencies, monetary easing continued in 2012 in

Albania, but interest rates in Serbia, where ination moved beyond the centra l bank ’s tol-erance band, were raised several times. Monetary conditions in the region should remainmostly accommodative in 2013, however, as private credit growth remains slow to pick up.

All South-Eastern European countries have run trade decits in goods in 2012and this is expected to continue in 2013. Te tourism sector, on the other hand, perormed

well in Croatia and in Montenegro. Te current-account decits in the region, despite theinows o workers remittances, again started to expand in 2010, as recovering domesticdemand spurred imports. Albania, Bosnia and Herzegovina, Montenegro and Serbia haverelatively large current-account decits, approaching or exceeding 10 per cent o GDP.

3 In some countries, there are substantial dierences between monthly registered unemployment

rates and labour orce surveys, which are only conducted on a yearly basis.

Unemployment is expected

to remain elevated

Fiscal stimulus is unlikely

Current-account decits

remain a risk or the region




The Commonwealth o Independent States:growth slows down

Economic growth slowed down across the region in 2012.4 A tepid global recovery damp-ened economic activity and constrained access to external nancing. Economic peror-

mance has weakened in most countries, including in the largest economy, the RussianFederation, which remains a major inuence on the others. Aggregate GDP in the regionrose by around 3.8 per cent in 2012. Growth is expected to remain at a similar level nextyear, well below potential, as the world economy continues to provide a difcult back-ground or the economies o the region. Te recent accession o the Russian Federationto the World rade Organization (WO) may generate some additional positive growthimpulses in the long term (box IV.1).

4 Georgia’s perormance is also discussed in the context o this region or reasons o geographic

proximity and similarities in economic structure.

The economic efects o the Russian Federation’s accessionto the World Trade Organization

In August 2012, ater 18 years o protracted negotiations, the Russian Federation eventually joined theWorld Trade Organization (WTO). Following the accession o China in 2001, the Russian Federationwas the largest economy outside o the WTO ramework. By joining the organization, the coun-try undertook a number o serious commitments: to gradually reduce its average tari bound toabout 8 per cent; to bring its national regulation o market access or services in line with the GeneralAgreement on Trade in Services (GATS); to soten its barriers on oreign direct investment; and toreduce state intererence into the economy. The country’s negotiating team, however, reused toaccept the commitment to allow oreign banks to establish their presence in the economy, except assubsidiaries or representative oces.

On the global scale, the economic implications o the country’s WTO membership willbe very modest, compared with China’s accession in 2001. The admission o China to the WTO haseventually led to a signicant decline in the prices o manuactured goods, but in the case o theRussian Federation, most o the exports currently consist o primary commodities, which are gener-

ally not subject to tari barriers. For the Russian Federation itsel, however, the membership and itspotential impact on economic diversication will have signicant macroeconomic implications.

The Russian economy remains in dire need o diversication. Most o its exports (about69 per cent in 2010) consist o oil, uels and natural gas, and the economy is dependent on importso manuactured goods. The high volatility o global energy prices and the country’s dependenceon this sector has resulted in considerable macroeconomic volatility. As productivity growth in com-modity sectors is generally below those in manuactures, this production structure has contributedto slower long-term economic growth. Given population ageing and projected shortalls in the pen-sion system in the coming decades, this has signicant implications or scal sustainability.

Despite limited manuactured exports, the Russian economy is currently running acomortable trade surplus and is diverting part o its hydrocarbon revenues to a national wealth und.However, in the longer run, the country may ace serious challenges when it is eventually conrontedwith signicant declines in oil production and a tighter market or natural gas. Still, the Russian econ-omy contains certain industrial sectors, such as aviation and engine production, which may nd aniche in global markets, i managed eciently, and has a well-educated and proessional labour orce.

The Russian automotive sector, which attracted a signicant amount o FDI and is beneting rombooming car sales, is an example o a successully upgraded industry, although it may need urthermodernization to withstand the post-transition competitive environment.

Box IV.1




Prior to the WTO accession, Russian policies aimed at industrial diversication werenot always riendly to the concept o ree trade. To achieve import substitution, the Governmentresorted to introducing export taxes, increasing import taris and requiring local content or manu-actured products. Direct state intervention was quite common and the country routinely resorted

to protectionist policies. FDI into the Russian Federation was at least partially restricted in 42 sectorsdesignated to be “strategic”. Consequently, FDI ows into the Russian economy were more modestcompared with other emerging markets (see gure). Since domestic businesses, on the other hand,oten did not have adequate access to nancing, investment rates remained low.

The immediate economic impact o the country’s WTO membership is expected to belimited. Only about one third o tari reductions will be applied immediately; or most other productgroups, a transition period o several years has been agreed upon. Some sectors, such as pig arming,dairy production and pharmaceuticals, as well as production o trucks and buses, will come understier competition. The ederal budget may lose about $6 billion in 2013 alone through reducedimport duties.

The long-run impact matters more though. Assessments o potential longer-term gainsor losses or the Russian economy vary, with both optimistic and pessimistic views. According to theoptimistic views,a which are contingent on much higher investment rates, signicant inows o FDI(including into the services sector) and urther nancial deepening, the Russian economy will gain

about 10 per cent o GDP in the long term. Private consumption in the medium run will gain severalpercentage points, improving the livelihoods o many households. As the Russian Federation alreadyenjoys a most avoured nation status with virtually all o its trading partners, most o those advan-tages will not come rom market access terms; rather, benets will derive rom the drastic increase inproductivity in the most competitive exporting sectors, a higher variety o imported inputs, a serioustechnological upgrade, and the ability to use the WTO dispute settlement ramework or resolvinganti-dumping cases. The Russian services sector (including nance, telecommunication and trans-portation) is expected to gain in size and eciency ollowing strong FDI inows.

The more pessimistic view, however, assumes low FDI inows and little progress indomestic modernization that will lead to negative eects on the economy at large, as many weak industries would lose market shares and the Russian Federation could lose out in any trade disputebecause o inexperience in using WTO’s dispute settlement ramework. Signicantly reduced sup-port or the agricultural sector will make it uncompetitive, while lower customs revenues will aectthe budget. The closing o unprotable enterprises and loss o corporate income tax payments willimpact regional budgets. Some economists ear that agriculture and manuacturing sectors or con-struction materials, consumer goods, ood industries and machine building could lose as many as 2million jobs or more in less than ten years, and that the accession will induce output losses, aecthousehold consumption and worsen income inequality.

Which one o those scenarios will materialize? Following China’s accession to the WTO,which led to a more predictable business and dispute resolution environment, FDI inows into China’smanuacturing sector, with its abundant labour resources, surged, and export growth acceleratedurther, to about 20 per cent a year. Such a scenario is unlikely in the case o the Russian Federation.

Thereore, the proponents o both views agree that the transition period should be used eciently.Since currently protected manuacturing sectors, oriented towards the domestic market, are likelyto shrink, the key to success would be to expand export-intensive industries and services. It will beimportant, to the extent allowed by the WTO ramework, to create incentives or exporters and toattract FDI into those industries and services. Attracting FDI into high value-added sectors where the

entire vertical integration chain can be developed domestically will improve the access to know-howand technology, and increase employment and the quality o human capital. Potential investors intothe Russian economy would benet not only rom exporting opportunities, but also rom the sheersize o the Russian domestic market and the ree trade agreements in the CIS area.

According to the World Bank’s Doing Business 2013 report, the Russian Federation ranked112 out o 185 economies on ease o doing business. The Government aims to achieve a much betterranking within several years, and drated several road maps outlining ways to improve the investment

Box IV.1 (cont’d)

a See, or example, Thomas Rutherord

and David Tarr, “Russia’sWTO accession: What

are the macroeconomic,sector, labor market

and household eects?”

available rom http://siteresources.worldbank.org/INTRANETTRADE/

Resources/Topics/Accession/Rutherord-

Tarr_russia-macro-eects.pd, accessed on

4 December 2012.




Continued income growth, avourable labour market dynamics and declin-

ing ination have provided impetus to domestic demand through the region. However,

persistent uncertainty regarding economic prospects and difcult international nancing

conditions contributed to a slowdown in investment. While growth o retail lending sup-

ported private consumption in the Russian Federation, high shares o non-perorming

loans in the banking system constrained new lending and thereby the expansion o do-

mestic demand in Kazakhstan. In Azerbaijan, the oil sector stabilized ater last year’s

large al l in output, although the non-hydrocarbons economy remained the main sourceo economic dynamism. In Ukraine, the poor perormance o export-oriented industrial

branches was compounded by the problems o the agricultural sector. For the smaller, low-

income countries, the Russian economy provides an important source o revenue through

the remittances sent back home by workers rom these countries (gure IV.5). Problems

in the gold sector, including a drastic all in output caused by social protests and strikes,

resulted in a sharp economy-wide slowdown in the Kyrgyz Republic.

Domestic demand osets

external weakness

climate both or domestic and oreign businesses, including reducing bureaucracy, achieving seriousprogress in investor protection and ghting corruption. The quality o the business environment willbe an important actor inuencing the eventual impact o WTO membership. The Government hasalso to improve the institutional capacity to utilize the WTO dispute settlement mechanism.

The proponents o both views also agree that an ecient government-sponsored poli-cy o mitigating the social costs o WTO membership, especially or unskilled workers, will be neededor the transition period. Thereore, strengthening the social saety net and investing in retrainingshould remain the ocus o economic policymakers.

Box IV.1 (cont’d)

Source: World Bank.

Annual average FDI ows as a share o GDP, 1996–2010

0

1

2

3

4

5

6

ChinaBrazil Czech

Republic

Russian

FederationIndia Poland

Percentage




Sustained economic expansion has brought a reduction in unemployment in the

region, although there are some marked dierences in the perormance o labour markets

across countries. Te unemployment rate reached historic lows in the Russian Federation, as

jobs growth was accompanied by a shrinking active population. By contrast, the economy

o Kazakhstan continued to generate employment at a rapid pace, but this was in line

with the growth o the labour orce. For low-income countries, migration and remittances

remained a channel to alleviate labour market tensions and support domestic demand.

Ination ell throughout the region in 2012. Following sharp increases in

ood and uel prices last year, ination slowed down markedly in the non-energy export-

ers. Ination accelerated again in the second hal o the year, however. In the Russian

Federation, the implementation o postponed administrative price increases and a poor

grain harvest resulted in growing inationary pressure in the last months o the year and

annual ination is estimated to exceed 5 per cent. In other CIS economies, ination rates

varied in 2012 rom about 0.5 per cent in Georgia to over 60.0 per cent in Belarus, where

the currency drastically depreciated in the atermath o a balance-o-payments crisis.

Except or Belarus, ination is expected to stay up during 2013 as the disination process

will be counteracted by urther increases in regulated prices across the CIS. Other actors

pushing prices up include expected nominal wage increases in energy-exporters and higher

oreign-exchange earnings pushing up money supply and domestic demand.

Despite the continued strength o domestic demand and, in some countries,

accelerating credit growth, benign inationary trends created room or some monetary loosening early in the year. However, renewed inationary pressures put an end to the

monetary easing. In the Russian Federation, capital outows tightened monetary condi-

tions, obviating the need or urther increasing the policy interest rate. In Belarus, the

improvement o nancial indicators ater last year’s devaluation led to large cuts in the

renancing rate, which were accompanied by rapid monetary growth in the presence o

still signicant inationary expectations. Despite low ination, there was no strong move

Ination declines, but

tensions re-emerge

Monetary policy loosening

comes to a standstill

0

20

40

60

80

100

120

2006 2007 2008 2009 2010 20110

500

1,000

1,500

2,000

2,500

3,000

A n u u a l i n fl o w o f r e m i t t a n c e s , m i l l i o n s o

f d o l l a r sCrude oil price

Armenia

Georgia

Kyrgyz RepublicRepublic of Moldova

Tajikistan

Figure IV.5

Crude oil price and the inow o remittances into small economies o the CIS

Source: World Bank.




towards monetary easing in Ukraine, because o concerns regarding the stability o the na-tional currency. Monetary authorities moved to support the currency by l imiting domesticand import demand through limits on the supply o credit ater imposing stricter reserverequirements or commercial banks. Despite a more complicated inationary outlook,urther weakening o the CIS economies may require urther monetary easing.

Sustained economic growth has boosted revenues, although non-energy ex-porters have continued to ace difcult sca l positions. By contrast, the Russian Federationand other oil- and natural gas-rich countries continue to enjoy the scal space requiredto support their recoveries in the ace o a difcult global environment. In Ukraine, atera large adjustment in 2011, scal consolidation was undermined by rapid expendituregrowth in the run-up to the parliamentary elections and the negative impact o a slowing economy on revenues. Delays in rising gas taris resulted in continued large nancialtransers to the state-owned oil and gas company Natogaz. Oil unds o several CIScountries, which were partially depleted during the nancial crisis, have been quickly rebuilt, such as in Kazakhstan and the Russian Federation, in particular. By contrast, thenon-energy exporting countries continue to ace scal tensions. In the Kyrgyz Republic,or instance, slowing GDP growth owing to the problems in the gold sector and growing

pressures to increase agricultural subsidies sharply widened the scal decit.Export growth moderated throughout the region as a result o lower global de-

mand. While oil prices remained elevated, current-account surpluses shrank in most energy-producing countries, including the Russian Federation, which makes the largest contributionto the aggregate surplus balance in the region. By contrast, Belarus made some progress inreducing its large current-account decit, partly thanks to reduced energy import bills romthe Russian Federation. Te decit also ell in most small non-energy exporters, but thegap is still very large and a major source o economic ragility in Armenia, Georgia and theRepublic o Moldova, in particular. Lower cotton prices contributed to a shrinking surplusin Uzbekistan. Te high cost o energy imports and alling steel prices kept the decit largein Ukraine, despite sharply declining growth.

Te ragility o the world economy continues to weigh on the economic pros-

pects o the region, which remains exposed to a worsening o the global situation, par-ticularly in Europe, the main economic partner. Any urther deterioration in the externalenvironment will result in alling export demand, lower commodity prices and difcultiesin accessing nance. Growing expenditures in the Russian Federation have increased theregion’s vulnerability to a decline in oil prices, but the implementation o scal consolida-tion plans and a lower dependence on capital inows are expected to increase resilience.In Ukraine, ragile scal and international reserve positions reduce the policy space oraddressing a urther deterioration in the global environment. Other medium-term risksemerge rom a weak banking sector and a high share o non-perorming loans, especial ly in Kazakhstan and in a number o smaller CIS economies.

Developing economiesDeveloping economies saw a slowdown in their aggregate growth rate in 2012 to 4.7per cent, compared with 5.7 per cent in 2011. Tere were two major outliers rom thisperormance: Arica, which registered a sharp increase in growth to 5.0 per cent in 2012ater a more pronounced slowdown in 2011 caused by the political changes in North

Arica; and Western Asia, where growth decreased markedly, mainly owing to the weakerperormance o the oil-importing countries in the subregion.

Economic growth has

boosted government

revenue

Risks or CIS economies

remain elevated




In the outlook, developing economies will register a moderate acceleration in

economic growth to 5.1 per cent in 2013 and 5.6 per cent in 2014. An outlier will again be

Arica, which will experience a modest slowdown in growth in 2013 stemming rom the

vanishing base eect o the rebound in growth in North Arica. While these rates remain

below those achieved in the years beore the economic crisis, they still set developing

economies apart rom the much lower growth rates o developed economies. Te reasonsor this include relatively greater policy space in a number o developing economies to

address weakening demand, expanding trade and nance ties between developing econo-

mies, as well as the still solid price levels or a number o export commodities.

Arica: solid growth expected with a moreavourable risk prole

Despite the global slowdown, Arica’s economic growth rate (excluding Libya) will see a vis-

ible rebound to 4.5 per cent in 2013 compared to 3.4 per cent in 2012 (gure IV.6). Te

upward trend is expected to continue in 2014, with growth reaching 5.0 per cent. Key actors

underpinning Arica’s strong growth prospects include solid growth in oil-exporting coun-tries, supported by increased oil production, and still elevated oil prices (box IV.2), as well as

increased scal expenditure, especially on inrastructure. At the same time, Arica’s increasing

trade and investment ties with emerging and developing economies are likely to mitigate the

impact o negative shocks emanating rom the recession in Europe. Similarly, other growth

actors, such as increasing domestic demand associated with rising incomes and urbanization,

will help reduce vulnerability to external shocks. Increasing diversication into services, such

as telecommunication, construction and other non-primary commodity sectors, including

manuacturing, also contribute to Arica’s positive growth outlook in the medium term.

EgyptTunisia

Nigeria

South

Africa

Eq. Guinea

Ethiopia

Gabon

Mozambique

NigerZambia

Zimbabwe

Morocco

Angola

BotswanaCameroon

Côte d'Ivoire

Ghana

KenyaMalawi

Rwanda

Senegal

United Republic of Tanzania

Uganda

Algeria

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0

2012

2 0 1 3

Year-over-year percentage change

Source: UN/DESA.

Note: Oil exporters in bold.

Figure IV.6

GDP growth rates or selected Arican economies, 2012–2013




New oil discoveries and the implications or growth in Arica

Recent discoveries and key eatures

In 2012, Kenya became the latest rontier or new oil discoveries in Arica, ollowing a series o previ-ously announced discoveries, notably in Ghana, Sierra Leone and Uganda. Ghana’s Jubilee eld, withan estimated total reserve o 490 million barrels o high quality oil, is expected to yield governmentrevenues o $1 billion on average per year between 2011 and 2029, based on a long-run price as-sumption o $75 per barrel. In Uganda, the Lake Albert Rit Basin is estimated to have oil reserves o 1.1 billion barrels, translating into 100,000 to 300,000 barrels o oil per day.a Oil production started inGhana in 2010 and there are plans to begin production in Uganda in the coming years. These discov-eries potentially add to the nine existing major oil-exporting countries (Algeria, Angola, Cameroon,Chad, Congo, Equatorial Guinea, Gabon, Libya and Nigeria).b

Past perormance o oil-exporting Arican countries

Examining the economic perormance o the Arican countries already exporting oil shows that, ingeneral, oil exporters have tended to are better in terms o average income growth than non-oil ex-porters. However, one o the major issues is that the relatively high overall growth o oil exporters has

not delivered the expected benets. The enormous revenues rom oil have not measurably boostedper capita incomes in many countries, and where they have, it has been unequally distributed. Forexample, Nigeria has exported over $700 billion in oil between 1980 and 2010c (which breaks down toalmost 40 per cent o per capita income on a yearly basis), and yet the country’s per capita income isbarely above the average or Arica. As well, despite having one o the highest GDP per capita in Arica,Equatorial Guinea is still only ranked 136 in the United Nations Human Development Index, whereasKenya, with a per capita income less than one tenth that o Equatorial Guinea, is ranked 143. Thispoints to either severe mismanagement o the revenue or signicant concentration o the oil wealth.

Natural resource dependence o selected oil-exporting Arican countries, 2010

Resource exports

(percentage o

non-resource GDP)

Resource revenue

(percentage o

total revenue)

GDP per capita

(United States dollars)

Angola 110.6 75.9 4,423

Cameroon 10.5 26.6 1,143

Chad 60.2 67.6 676

Congo 224.1 79.0 2,943

Equatorial Guinea 171.6 88.1 19,998

Gabon 116.3 53.9 8,643

Nigeria 54.3 72.2 1,222

Source: IMF, Regional Economic Outlook: Sub-Saharan Arica, October 2012.

As a result o the oil wealth, the economies o a number o these oil-rich countries havebeen distorted and they are now heavily dependent on the revenues rom oil production (table). Thesize o the oil revenues relative to the rest o the economy has resulted in real exchange-rate appre-

ciation and lack o economic diversication. The reliance on and ample availability o those revenueshas weakened governance and become a source o rent-seeking behaviour.d Evidence suggests thatcountries that are scally dependent on oil experienced signicantly higher volatility in exports, rev-enue and non-oil GDP growth.e This is largely attributed to the high volatility in world market priceso natural resources compared to other goods, which leads to higher volatility o budget revenuesand risks macroeconomic stability in scally dependent countries. In addition, the net barter termso trade have depended heavily on changes in oil prices, which declined in the 1980s, remained at

Box IV.2

a Ernest Aryeeteyand others, “ForesightArica: The Continent’sGreatest Challenges andOpportunities or 2011”(Arica Growth Initiative atBrookings, January 2011),pp. 22-24.

b Prior to the breakup,Sudan would have beenincluded in this list. Givenrecent conicts betweenSudan and South Sudan, itis dicult to estimate whatcombined exports or thetwo countries are likely tobe going orward.

c International MonetaryFund, World EconomicOutlook database,October 2012.

d Pedro Conceição, RicardoFuentes and SebastianLevine, “Managing naturalresources or humandevelopment in low-income countries”, WorkingPaper, No. 2011-002 (UNDPRegional Bureau or Arica,

December 2011).e International MonetaryFund, Regional Economic

Outlook: Sub-Saharan

Arica—Sustaining Growth

amid Global Uncertainty (Washington, D.C.,October 2012).




in the 1990s and jumped up signicantly in the last decade, particularly between 2004 and 2008(gure). This implies that the countries with new oil discoveries will have to be well served by coun-tercyclical macroeconomic policies, including through the use o oil stabilization unds, to smoothuse o the newly acquired wealth over time.

Policy options or Arican countries

The recent discoveries have occurred in countries with low levels o income per capita and high eco-nomic and social inequalities. It is natural that expectations o their citizens would be raised and hopesor improved conditions voiced. The track record o managing and redistributing oil wealth has beenless than stellar among most o the existing oil exporters in the region. Yet, i well-managed, new oildiscoveries could present unique opportunities or accelerated growth and development in Arica.While it seems likely that the new oil discoveries will boost the GDP o these countries, the real ques-tions are whether those gains are sustainable and how they are distributed. Achieving sustainabilityand equitable distribution requires a mix o policy options that addresses short-term scal issues andlong-term investments and sustainability concerns. There are a ew primary-exporting countries in theregion that have been moderately successul in meeting these goals, such as Botswana, through itsCommunity Based Natural Resource Management (CBNRM). While CBNRM in Botswana was not based

on management o oil revenues, it is nonetheless a good example o establishing the appropriate re-lationships between the communities directly aected by the extraction operations, the Governmentand the resource extractors (or end users). There have also been relatively recent eorts by Angolato establish an oil-nanced sovereign wealth und to aid in diversication o the economy throughinvestments in domestic agriculture, water, power and transportation projects. The planned creationo Stabilization and Heritage Funds outlined in Ghana’s Petroleum Revenue Management Bill wouldutilize oil revenues both to cushion against oil price volatility and to support uture social programmes.

Box IV.2 (cont’d)

Source: World Bank.

Net barter terms o trade or selected Arican oil exporters

0

50

100

150

200

250

300

1 9 8 0

1 9 8 2

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

2 0 1 0

Algeria

Angola

Cameroon

Chad

Congo

Equatorial Guinea

Nigeria

Index 100=2000




Economic growth in North Arica is orecast to rebound strongly in 2013

and 2014 in the atermath o the Arab Spring, despite continued uncertainty. Egypt is

expected to grow at 3.2 per cent in 2013 as concerns over stability dissipate with increased

external support. Libya’s economy is expected to recover to its pre-crisis level, while growthin Algeria, Mauritania, Morocco and Sudan will benet rom the end o the drought.

However, the protracted and unresolved euro area sovereign debt crisis still threatens theeconomies o the subregion through the trade and tourism channels.

Central, Eastern, Southern and West Arica’s economies continue to see a gen-

erally vibrant development in domestic demand, based on strong investment in view o theshortall in inrastructure and the expansion o service sectors such as telecommunications

and construction. Tis applies, or example, to Kenya, which is expected to maintain

relatively robust growth o 5.4 per cent in 2013, with a rebound in domestic investment

helped urther by lower interest rates.South Arica will register accelerating growth o 3.1 per cent in 2013 in view

o a stabilizing international economic environment that is particularly relevant or its

resources and manuacturing sector. On the domestic side, however, growth will be held

back by continued high unemployment. In addition, urther labour unrest and socia l ten-

sions emanating rom pervasive inequalities continue to orm a signicant downside risk to economic growth.

Te oil-producing economies in Central, Southern and West Arica will benet

rom sustained strong demand or oil and elevated export prices. In Nigeria, growth is ore-

cast to accelerate to 6.8 per cent in 2013, with non-oil sectors such as telecommunications

and construction providing signicant impetus to economic activity. Te positive impacto the oil and services sectors on growth is similar in Ghana, where solid agricultural

output and increasing production by gold mines are orecast to lend additional support to

the economic perormance. Other economies that will benet rom conditions in the oil

market include Angola, Cameroon, Chad, Equatorial Guinea and Gabon. However, this

exposure to the international oil market also implies a major downside risk in the case o

a signicant al l in oil prices that could be triggered, or example, by a more pronouncedglobal slowdown. Capacity-increasing investments in their mining sectors will be impor-

tant drivers o GDP growth in countries like United Republic o anzania and Zambia,

even though these mineral and metal exporting countries will a lso be vulnerable to volatile

commodity prices and slowing international demand, especially rom China.Despite the positive growth picture, the employment situation remains a major

problem across the region, both in terms o the level o employment as well as the quality

o jobs that are generated, especially in North Arica. Wide gender disparities in employ-

ment and earnings remain a major concern. Women ace unemployment rates at least

double that o men in countries such as Algeria and Egypt. High youth unemployment isa urther concern. With the ast growth o the labour orce, the solid rates o GDP growth

have proven ar rom sufcient to absorb all new labour market entrants, given the current

pattern o production and employment generation. Te lack o economic diversicationaway rom the heavy dependence on resource extraction or agriculture is a key reason why

labour demand is not more dynamic. Continued growth in other sectors like telecom-munications and construction in countries such as Ghana, Kenya and Nigeria is helping

to change this situation, however. At the same time, labour conicts and social unrest

constitute a major downside risk to the economic perormance o the region. In South

Arica, or example, a labour conict in the mining sector caused the loss o numerous

North Arica is orecast to

see a strong recovery in the

wake o the Arab Spring

In the rest o Arica,

inrastructure investment

and expanding service

sectors drive domestic

demand

South Arica will see solid

growth that is tempered by

high unemployment

and inequality

Unemployment remains a

pressing problem




lives and major disruptions in a crucial sector o the economy in 2012. Strikes by publicsector workers also occurred in Kenya and the United Republic o anzania, causing ma-

jor disruptions in the health and education sectors.On average, ination rates will recede moderately across the region in view

o the weakening international environment and the ading one-o impact o drought

conditions on harvest yields and domestic ood prices. In South Arica, upward ina-tion pressure rom wage growth and higher regulated prices will increasingly be osetby weakening commodity prices, resulting in an expected ination rate o 4.2 per centin 2013. Côte d’Ivoire will register one o the lowest ination rates in the region; a morestable political situation and the normalization o trading activities on local markets willkeep price increases limited to 2.1 per cent in 2013. By contrast, some o the oil-exporting economies are expected to see high ination. In the case o Nigeria, government spending,especially at the state level, will keep ination above 10 per cent in 2013, while strong domestic consumption will keep ination in Angola and Ghana at about 10 per centand 8 per cent, respectively, in 2013. A number o countries will see a continuation o a pronounced downward trend in ination rates. In Kenya and Uganda, or example, thehigh ination rates o late 2011 and early 2012 have been brought down mainly through

decreases in ood price ination and by aggressive interest-rate policies which containedcurrency depreciation in these countries. Barring a return o signicant drought condi-tions, ination will continue to moderate and remain in single digits in 2013.

Fiscal budgets will remain under pressure on a number o ronts. Te lack o adequate inrastructure will require signicant investments, while extremely low coverageo social security and high unemployment levels will create continuing pressure to initiatenew spending to address at least some o the urgent welare problems. At the same time,generating sufcient revenues will remain challenging or a host o reasons: many countrieshave only limited tax collection capabilities; oil prices will provide no additional boost toscal revenues or oil-exporting countries; and ofcial development assistance (ODA) isalso expected to remain under pressure, given the scal austerity measures among many o the donor countries. In the orecast, scal policies will remain relatively loose in 2013,

with many economies running budget decits, while some move towards consolidation isexpected in 2014.

Although Arica’s average current-account decit narrowed to just 0.6 per cento GDP in 2012, oil-exporting countries recorded a surplus o 3.7 per cent compared toa decit o 6.9 per cent or oil-importing countries. Current-account decits widened inmany countries because o large ood and energy imports and dependence on importedservices. With increased pressure exerted by widening current-account decits, domesticcurrencies depreciated against the United States dollar in several oil-importing countries.Te pressure is orecast to continue in the medium term owing to increased demand orimported capital goods in many countries and the knock-on eect o the recession inEurope on demand or Arican exports.

Aid ows to Arica are expected to stabilize or even decline in 2013 and 2014ollowing the global economic slowdown and scal difculties in many donor countries. Arica’s external debt is expected to rise because o increased external nancing needs o some o the Arab Spring countries, such as Egypt and unisia, and borrowing in privatecapital markets by countries such as Ghana, Senegal and South Arica.

Te outlook is subject to a number o risks and uncertainties. A more severeand broader global economic slowdown encompassing emerging economies would hold thepotential to inict signicant damage on the region’s perormance through a contraction

Ination is moderating,

but remains high in

some countries

Fiscal budgets will have

to address multiple

policy challenges

The global economic

picture will put pressure

on ODA




in trade, tourism and remittances. Moreover, the scal problems in developed economiescontinue to create uncertainty regarding uture ODA ows. In addition, unexpected ad-verse weather conditions that would negatively aect harvest yields pose another downsiderisk, given the signicant role o the agricultural sector in many economies.

East Asia: slowdown in China and recession in Europeweigh on regional growth

Sluggish demand in developed economies and a sharper-than-expected slowdown inChina have weighed on economic growth in East Asia over the past year. Te region’saggregate gross domestic product expanded by 5.8 per cent in 2012, down rom 7.1 percent in 2011 and 9.2 per cent in 2010 as export growth altered and investment spending in many economies slowed. Household consumption continued to grow at a robust pacein most countries, supported by resilient labour markets and a decline in ination. In theoutlook, GDP growth in the region is orecast to pick up to an average o 6.2 per cent in2013 and 6.5 per cent in 2014, supported by a modest recovery in external demand andmore expansionary monetary and scal policy.

In China, the pace o economic expansion declined rom 9.2 per cent in 2011to 7.7 per cent in 2012, the lowest rate in more than a decade. Weaker export demandand a sharp decline in investment growth, especially in the real estate sector, dampenedoverall output growth. Because o more structural problems, there is a risk o a possiblehard landing o the Chinese economy (see chapter I), but it is not considered very high inthe immediate outlook. In 2013, consumption and investment demand in China wil l besupported by the loosening o monetary and scal policy, with ull-year growth projectedto pick up slightly to 7.9 per cent. Weaker domestic demand in China, along with therecession in the euro area and subdued demand in Japan and the United States, weighedheavily on activity in East Asia’s higher-income and export-dependent economies. Hong Kong Special Administrative Region o China, the Republic o Korea, Singapore andaiwan Province o China saw a sharp drop-o in growth in 2012 as subdued demandor exports led to lower capital spending. Along with a modest expected improvement inglobal conditions, these economies are likely to see moderate recovery in 2013 and 2014,but growth is projected to remain well below potential.

Te slowdown in China and the higher-income economies o East Asia contrasts with the solid growth momentum in Indonesia, Malaysia, the Philippines and Tailand, where buoyant consumption and investment demand largely oset lower net exports. Testrong growth perormance in the Philippines and Tailand was supported by signicantrises in public investment spending, but also reects a base eect ollowing weak growth in2011. Growth in this group o countries is orecast to remain airly stable in 2013.

Labour markets in East Asia have so ar remained resilient to the slowdown ingrowth, although unemployment rates edged up in some o the region’s export-dependent

economies in the course o 2012. In several countries, including Malaysia, the Republico Korea and Singapore, the unemployment rate continues to be close to historic lows asrobust domestic demand helped oset the impact o weaker exports and manuacturing activity. In Indonesia, unemployment declined to 6.3 per cent in the rst quarter o 2012,about hal the rate o 2006. As in other East Asian countries, most o the new jobs inIndonesia have been created in the service sector, where productivity continues to be muchlower than in the manuacturing sector. As a result, the share o workers in vulnerable

Export-dependenteconomies have seen the

largest drop-o in growth

Labour market conditions

have so ar remained airly

resilient to the slowdown




employment conditions remains high, ranging rom about 20 per cent in Malaysia ac-cording to International Labour Organization (ILO) estimates to 50 per cent in Tailandand 60 per cent in Indonesia. Since labour markets tend to react with a lag to weakening economic activity, employment growth in many countries is likely to slow in the quartersahead. Unemployment rates are expected to show little change in 2013 and 2014.

Ination has declined signicantly in East Asia over the past year as domesticdemand sotened and many international commodity prices eased. For the region as a whole, consumer price ination averaged 2.9 per cent in 2012, well below the rate o 4.9 percent recorded in 2011. In most economies, including China, Indonesia and the Republic o Korea, the current rate o ination is rmly within the target ranges set by central banks.Te recent hikes in the international prices o several ood commodities, notably corn,soybeans and wheat, have not led to a signicant increase in ood price ination across theregion. Tis can be attributed to the relatively small weight o these grains in consumerprice index baskets and the act that prices o rice, East Asia’s staple ood, have remainedstable. Looking orward, consumer price ination across the region is projected to remainrelatively low as more moderate economic growth will not lead to signicant demand-pullpressures. In addition, the strength o regional currencies against the dollar and the euro is

expected to contain imported ination. Regional ination is projected to average 3.1 percent in 2013 and 3.5 per cent in 2014, in line with an expected gradua l recovery in growth.Upside risks to ination include the re-emergence o strong capital inows ollowing thenew round o quantitative easing (QE) policies in developed economies, the impact o planned subsidy reductions (or instance, in Indonesia and Malaysia) and strong nominal

wage growth, especially in China, Tailand and Viet Nam. Against the backdrop o slowing economic activity and reduced inationary

pressures, East Asia’s monetary authorities have shited ocus rom containing inationto stimulating growth. Ater tightening monetary policy in 2010/11, many central bankshave cut interest rates over the past year to support domestic demand. Te People’s Bank o China (PBC) reduced the one-year benchmark deposit rate by a total o 50 basis pointsto 3 per cent and the one-year benchmark loan rate by 56 basis points to 6 per cent. Te

PBC also lowered the reserve requirement ratio or deposit-taking institutions and usedopen-market operations to inject liquidity into the banking sector. Similarly, the centralbanks in Indonesia, the Philippines, the Republic o Korea and Tailand eased monetary policy in the course o 2012. In contrast to the cautious approach taken by other monetary authorities in the region, the State Bank o Viet Nam cut interest rates aggressively in therst hal o 2012 amid rapidly declining ination and weakening growth. However, the re-emergence o inationary pressures in the third quarter reduced the scope or urther mon-etary easing in Viet Nam. Te monetary authorities in Hong Kong Special AdministrativeRegion o China, Singapore and aiwan Province o China have so ar rerained romloosening monetary policy despite markedly lower growth. In the quarters ahead, someurther monetary easing in East Asia may take place. However, unless the regional outlook deteriorates signicantly, most central banks will maintain their cautious approach.

Across East Asia, Governments adopted a more expansionary scal policy inthe course o 2012 as the economic slowdown became increasingly apparent. In Indonesia,Malaysia, the Republic o Korea, Tailand and Viet Nam, the authorities introduced low-interest loans, cash transers to low-income households, lower tax rates and tax breaks to uelprivate sector demand and mitigate the social impact o the slowdown. Te Governmentsin China, Indonesia and the Philippines also announced increases in public inrastructurespending. Te size o these scal injections is, however, small relative to the unprecedented

Inationary pressures are

projected to remain low

Central banks have shited

ocus rom ination

to growth

Fiscal policy has becomemore expansionary to

counter the slowdown




policy responses in the wake o the global nancial crisis. As a result o rising expenditures

and weaker revenue growth, scal balances deteriorated in 2012. Still, budget decits

remained below 3 per cent o GDP in all East Asian economies, except Malaysia and Viet

Nam. Going orward, scal decits are projected to narrow as a share o GDP in most

countries, as income growth and government revenues are expected to recover gradually

and authorities remain committed to long-term scal sustainability. While low decit anddebt levels imply that most Governments have ample room or additional scal stimulus

measures, they are only expected to do so i growth prospects deteriorate more sharply.

rade and current-account surpluses in most East Asian economies narrowed

in 2012 (gure IV.7) as exports decelerated more rapidly than imports. Te weakness in

export earnings across the region reects subdued import demand in developed econo-

mies, slowing demand in China and a decline in the prices o many export commodities,

such as rubber and copper. Te region was particularly aected by the al l in EU demand

or machinery, transport equipment and other manuactures. Compared to 2011, the dol-

lar value o merchandise exports remained at or declined slightly in most East Asian

economies, including Indonesia, Malaysia, the Republic o Korea and aiwan Province o

China. At the same time, import bills continued to grow in most countries, although much

more slowly than in the past two years. In Indonesia, however, import growth remained

robust owing to strong domestic demand, resulting in a sharp contraction o the trade

surplus and the rst annual current-account decit in 15 years. China’s external surplus, in

contrast, did not decline, as export earnings continued to grow in 2012. Although export

growth was weaker than in 2011, it outpaced import growth. In 2013, East Asia’s exports

and imports are projected to grow at a subdued pace given the continuing weakness in

global conditions. rade and current-account balances are expected to improve slightly.

Even though economic undamentals remain strong, risks to the region’s eco-

nomic outlook remain tilted to the downside. A urther deterioration o the sovereign debt

crisis in Europe remains a major risk or East Asia’s economies since it would likely lead

to renewed turmoil on nancial markets and a sharp contraction in global trade activity.

Current-account surpluses

decline owing to a slump

in exports

Euro area crisis and a

possible hard landing o

China’s economy remain

key risks

Source: UN/DESA based ondata rom EIU and nationalsources.

Note: Figures or 2012 arepartly estimated.

Figure IV.7

Current-account balances o selected East Asian economies, 2000-2012

-10

-5

0

5

10

15

20

2000 2002 2004 2006 2008 2010 2012

China Indonesia Malaysia Thailand Hong Kong SAR

Percentage of GDP




A sharp deceleration in the pace o growth in China would have a severe impact on eco-nomic activity in the region, with Hong Kong Special Administrative Region o China,Singapore and aiwan likely to suer most rom lower demand or their exports. Fiscalpolicy uncertainty in the United States and continued geopolitical risks in oil-producing areas represent additional risk actors or regional growth.

South Asia: internal and external headwinds urtherweaken economic activity

Economic activity in South Asia slowed urther in 2012 as internal and external headwindspersisted. Ater growing by 5.8 per cent in 2011, the region’s gross domestic product expandedby 4.4 per cent in 2012, the slowest pace in a decade. Persistent high ination, political uncer-tainties, and transport and energy constraints have weighed on household consumption andbusiness investment. At the same time, the exports o most countries in the region have beenaected by weakening global demand. In most countries, the scope or macroeconomic poli-cies to support growth is limited. Central banks are trying to walk a ne line between support-ing demand and curbing ination, while Governments ace pressures to bring down budgetdecits. Going orward, economic growth in the region is projected to accelerate moderately to 5.0 per cent on average in 2013 and 5.7 per cent in 2014, led by a gradual recovery in India.

India’s economy, which accounts or almost three quarters o the region’s GDP,has slowed markedly over the past two years. Annual growth declined rom more than 9 percent in 2010 to 5.5 per cent in 2012, the slowest pace in 10 years. Te slowdown primarily reects weaker consumption and investment demand as a result o persistent ination, highnominal interest rates, large scal decits and political gridlock. Tese actors will likely remain a drag on economic growth in the outlook period. Nonetheless, GDP growth isorecast to accelerate moderately to 6.1 per cent in 2013, as a result o stronger growth o exports and capital investment. Investment demand is expected to respond to the moreaccommodative monetary policy stance and slightly improved business condence.

Nepal and Pakistan continue to experience subdued growth as ongoing politi-cal instability and security concerns weigh on domestic demand. In Pakistan, investmenthas been in decline or our consecutive years, down to only 12.5 per cent o GDP in2011/12. Economic activity in the Islamic Republic o Iran contracted in 2012 as interna-tional sanctions led to a sharp decline in oil exports and a sharp all in the value o the rial.Economic prospects or Bangladesh and Sri Lanka, in contrast, remain largely avourabledespite a moderate slowdown in 2012. In both countries, the economic expansion is basedon strong growth in private investment and consumption, which is supported by a steady increase in worker’s remittances.

Given the lack o sufciently up-to-date labour market data in South Asia,the employment impact o the recent economic slowdown is not yet clear. Te ourteenthreport on employment changes in selected sectors, published by India’s Labour Bureau in

May 2012, indicates that employment growth in the country’s manuacturing sector hadslowed considerably during 2011/12. According to the survey, employment continued toincrease in India’s exporting rms, but declined in the non-exporting sector amid weaken-ing domestic demand. Although open unemployment rates in the region are low—the ILOprojects an average unemployment rate or the region o only 3.8 per cent in 2012—thereare deep-rooted structural challenges in the labour market. Tese challenges include thedominance o low-productivity jobs in the large inormal sector, high shares o working

India’s economic growth

slows to a ten-year low

South Asia continues to

struggle with deep-rooted

structural challenges in its

labour market




poor, low emale participation rates and high youth unemployment. Recent labour market

reports or India and Pakistan illustrate the magnitude o these challenges. In India, less

than 20 per cent o persons are classied as wage earners, whereas about 80 per cent are

either sel-employed or temporary workers. Te emale labour orce participation rate in

India is estimated at 25.4 per cent, compared to 77.4 per cent or males. In Pakistan, three

quarters o employed women work in the agricultural sector, the large majority o them invulnerable employment conditions.

Inationary pressures remained persistently high in most South Asian econo-

mies over the past year (gure IV.8). Consumer price ination averaged 11.6 per cent in

the region in 2012, slightly up rom 11.2 per cent in 2011. Te renewed rise in ination

can be attributed to several actors: droughts in parts o the region, higher world ood

prices, signicant depreciation o local currencies, and increases in administered uel and

electricity prices. Deeply entrenched inationary expectations and large sca l decits, par-

ticularly in India and Pakistan, urther added to the price pressures. Year-on-year ination

rose to about 25 per cent in the Islamic Republic o Iran in late 2012, as the removal o

government subsidies and the all o the ria l against the dollar drove up domestic prices.

Bangladesh and Pakistan, in contrast, experienced a moderate decline in ination

over the course o 2012, partly owing to more subdued growth o private sector credit. In the

outlook, consumer price ination is projected to decline slightly in most economies, averaging

10.6 per cent in 2013 and 9.9 per cent in 2014 or the region as a whole. More stable local cur-

rencies, lower global ood prices and slower money supply growth are expected to reduce price

pressures. However, persistently high ination expectations, severe supply bottlenecks and the

need to urther raise administered energy prices will impede progress in reducing ination.

Persistent inationary pressures and large scal decits continue to limit the

scope or monetary policy easing in response to slowing economic growth. Te central

Ination remains

persistently high

0

5

10

15

20

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

Percentage

Pakistan

Sri Lanka

India

Bangladesh

Figure IV.8

Consumer price ination in selected South Asian countries, January 2010-October 2012(year-on-year percentage change)

Source: UN/DESA, based ondata rom national sources.

Notes: For India, inationin consumer price indexnumbers or industrialworkers was used, providedby the Labour Bureau o theGovernment o India.




banks o Bangladesh and Sri Lanka raised policy rates in early 2012, but let the monetary stance unchanged in the remainder o the year. Authorities o both countries are expectedto maintain the current policy stance unless growth slows more sharply than expected.Te Reserve Bank o India (RBI), which had increased its benchmark repo rate 13 timesbetween March 2010 and October 2011, cut interest rates only slightly in 2012, even

though investment demand slumped. o boost liquidity in the banking system, the RBIalso reduced the cash reserve ratio or banks. While India’s monetary authorities remainocused on containing ination and anchoring ination expectations, continued weaknessin private capital spending is expected to prompt urther monetary easing in the quartersahead. Unlike the RBI, the State Bank o Pakistan (SBP) has ully shited its ocus tostrengthening private investment, which has declined or our consecutive years, and sup-porting domestic demand. Te SBP cut its main policy rate rom 12 per cent to 10 percent in 2012. I ination continues to slow in the coming quarters, additional interest ratereductions are likely.

Weakening growth o tax revenues, rising expenditures on energy, ood andertilizer subsidies, and higher security spending have al l put additional pressures on scalbalances in South Asia. In almost all countries, the decit reduction targets or the past

scal year were missed by a considerable margin. Despite increased eorts to lower spend-ing on subsidies, this trend is likely to continue as Governments ace major scal chal-lenges, including strong expenditure demands that will address energy shortages, enhance

welare spending, and narrow tax bases. In India, the government decit widened to 5.8per cent o GDP in 2011/12, well above the target o 4.6 per cent. Te shortall can beprimarily attributed to lower-than-expected corporate tax revenues, ollowing the markedeconomic slowdown, and higher subsidy expenditure as ood and uel prices remainedelevated. Actual government decits also exceeded initial targets in other South Asianeconomies during the past sca l year, accounting or 5.2 per cent o GDP in Bangladesh,6.2 per cent in Sri Lanka and 6.3 per cent in Pakistan.

In most South Asian economies, trade and current-account decits widenedsignicantly in 2012. Exports were hit hard by weakening demand in key markets, in-cluding the EU, the United States and China. Te annual value o merchandise exportsdeclined moderately in India, Pakistan and Sri Lanka, reecting both lower volumesand lower prices o major export commodities like rubber and cotton. In the IslamicRepublic o Iran, export earnings contracted by more than 25 per cent in 2012 ollowing the tightening o sanctions. In most South Asian countries, import spending growth alsodeclined sharply in 2012, although import bills continued to be pushed up by high oilprices and still robust consumer spending. An important actor behind the slowdown inimport spending was the sharp depreciation o local currencies. Te Indian rupee, orexample, lost more than 25 per cent o its value against the dollar between June 2011 and

June 2012. Te weakness in the region’s currencies can be attributed to large and rising current-account decits as well as a sharp decline in portolio inows amid recurring

concerns over the regional and global outlook. Workers’ remittance ows to Bangladesh,Pakistan and Sri Lanka continued to grow at a strong pace in 2012, partially osetting thelarge trade decits. In the outlook period, South Asia’s economies will continue to recordlarge and partly widening current-account decits.

Downside risks to the economic outlook or South Asia are related to thecontinued weakness o the global macroeconomic environment and to regional or do-mestic economic vulnerabilities. On the external side, a urther economic downturn in

Slower growth and higher

subsidy bills weigh on

scal balances

Trade decits widened

urther as exports were hit

by the global slowdown




the United States or Europe or a hard landing o China’s economy would urther weakenSouth Asia’s exports, while also reducing inows rom workers’ remittances. Widening current-account decits, coupled with lower portolio capital inows, could add pressureon the balance o payments, possibly requiring contractionary policy adjustment. Politicalinstability and deteriorating security conditions represent downside risks or several coun-

tries, notably the Islamic Republic o Iran, Nepal and Pakistan.

Western Asia: economic growth diverges between oiland non-oil economies

Economic perormance in Western Asia strongly diverged in 2012, with most oil-export-ing countries continuing to experience robust though decelerating growth, supportedby record-high oil revenues and government spending. By contrast, economic activity

weakened sharply in oil-importing countries, burdened by higher import bills, declining external demand and shrinking policy space. Te divergence is expected to continue in theoutlook or 2013, but there may be some convergence in 2014. On average, GDP growthin the region is estimated to decline rom 6.7 per cent in 2011 to 3.3 per cent in 2012(gure IV.9). It is orecast to stagnate in 2013 beore picking up to 4.1 per cent in 2014.

Most oil-exporting countries benetted rom record-high oil prices and rising oil output in 2012, especially Iraq, Kuwait and Saudi Arabia. Strong growth in Saudi

Arabia was urther underpinned by the expansion o domestic demand and a dynamicreal estate sector. Public and private investments bolstered growth in Qatar. Economicactivity grew more modestly in Bahrain, Oman and the United Arab Emirates as thenancial and real estate sectors gradually recovered. Political instabil ity delayed any pos-sible recovery in Yemen.

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

Western Asia Oil exporters Israel TurkeyJordan, Lebanon and

the S rian Arab Re ublic

2011

2012

Figure IV.9

GDP growth in Western Asia

Source: UN/DESA.




Social unrest and political instability, notably the civil war in the Syrian ArabRepublic, weighed on risk perception in the entire region (box IV.3). Neighbouring Jordanand Lebanon were urther aected by subdued cross-border economic activities, including trade, investment and tourism.

Negative spillover rom

the Syrian crisis aected

neighbouring countries

and the region at large

The economic impact o the Syrian crisis

Lasting armed violence in the Syrian Arab Republic caused a humanitarian crisis and inicted signi-cant economic damage, including the destruction o commercial and residential properties, inra-structures and production acilities. In his address to the parliament on October 2, the Syrian PrimeMinister estimated the cost o total damages at 2000 billion Syrian pounds,a which amounts to 55 percent o the 2010 GDP ater adjusting or ination. Furthermore, at least one third o the 2010 capitalstock may have been destroyed as o October 2012. Despite the Government’s eort to increaseemployment in the public sector, unemployment increased signicantly rom an annual average rateo 8.6 per cent in 2010 to 14.9 per cent in 2011b and the situation worsened signicantly in 2012 as agrowing number o workers became unemployed, underemployed, were deterred rom reporting to

work, were displaced domestically or became political reugees abroad. Under these conditions, theSyrian economy will need several years to recover ater the internal armed conict comes to an end.

Economic sanctions imposed by the United States, the EU and the League o ArabStates also negatively impacted the Syrian economy. The oil embargo caused an export revenue losso about $4 billion, cutting government revenue by about 25 per cent in 2012. Financial sanctionsurther hampered trade by complicating trade nancing and exerting pressures on the Syrian cur-rency. In January, the central bank had to introduce a managed oat o its exchange rate, allowingthe Syrian pound to devaluate by more than 30 per cent beore stabilizing around SYP70/$. Althoughimports o many essential goods were liberalized, trade o non-sanctioned goods, such as wheatand pharmaceuticals, declined signicantly. Despite the imposition o a prot ceiling on wholesalers,prices kept rising rapidly, and in August 2012, the year-on-year consumer ination rate reached 39.5per cent. As a consequence o ongoing armed violence and sanctions, the number o tourists haddropped by 76 per cent year on year in the rst quarter o 2012 and investments rom Gul countriesin tourism inrastructure have been put o indenitely.

The Syrian economy showed some signs o resilience, however, as the public and privatesectors both made eorts to maintain basic inrastructure and business activities during disastrouseconomic, social and security conditions.

Spillover efects on neighbouring countries and intraregional trade

Political instability and precarious security conditions aected risk perception across the region,especially regarding Iraq, Jordan and Lebanon. Capital inows and tourist arrivals, which were themain drivers o the recent economic expansion in Jordan and Lebanon, came to a halt. As demandor oreign currencies surged in the region, the Jordanian central bank had to raise interest rates andsell oreign reserves to deend the Jordanian dinar, and the Iraqi dinar depreciated against the UnitedStates dollar. Higher risk proles and weak currencies kept unding costs elevated in those countries,even as they declined in other parts o the region.

The Syrian crisis urther aected intraregional trade (table). Bilateral trade ows betweenthe Syrian Arab Republic and neighbouring countries decreased substantially in the rst hal o 2012,

with the exception o Lebanon through which a rising share o Syrian imports transit to Damascusand Southern regions. The transit o goods through Syrian territory almost came to a halt, divertingto alternate routes, and new trading partnerships and networks are being ormed. Turkey may havebenetted most rom the partial reshufing o bilateral trade ows in the region. Iraqi exports toLebanon and Turkey expanded as well, whereas Jordanian exports, by contrast, appear to have su-ered rom the precarious security conditions along its border with the Syrian Arab Republic. Bilateraltrade ows with Turkey nonetheless expanded, albeit rom very low initial levels.

Box IV.3

a Syrian Arab News Agency(SANA), “Premier al-Halqi:

Syria Paying or Its Stances”,October 2, availablerom http://sana.sy/

eng/21/2012/10/02/444919.htm- (accessed

on 10 October 2012).

b Data rom Syrian ArabRepublic Central Bureau

o Statistics, available romhttp://www.cbssyr.org/

work/2011/compare/ TAB2.htm (accessed on 10

October 2012).




Te deteriorating external environment increasingly aected economic activity in Israel, while weakening domestic demand contributed to a sharp decline in economicgrowth in urkey.

Social unrest associated with the Arab Spring surged in part because o the weak absorption capacity o labour markets across the region, which generates underem-ployment and unemployment. Low ofcial unemployment rates disguise the true extento underutilization o labour because o low participation rates. Governments o the Gul Cooperation Council (GCC) countries have responded to social unrest by raising wages

and creating new jobs in the public sector, including by strengthening security orces.Meanwhile, migrant labour represents about 90 per cent o the private sector work orceacross GCC countries, as a consequence o uncompetitive compensation compared to thepublic sector and poorly coordinated education and industrial policies that result in a skil lsmismatch. In Saudi Arabia, or instance, the unemployment scheme created in the wakeo the Arab Spring, attracted more than a million unemployed workers, many o them

women not previously considered part o the labour orce.In Jordan, the unemployment rate declined by 0.9 percentage points to average

12.0 per cent over the rst three quarters o 2012, but underemployment and vulnerableemployment is widespread. In urkey, unemployment declined slightly to almost 9 percent in 2012. In Israel, new unemployment estimates (now aligned with OECD deni-tions) showed an increase in the rate by more than one percentage point to almost 7 per

cent in 2012, contrasting with earlier estimates and thereby undermining claims that thecountry would be coping with the global slowdown with relative ease.

Fiscal policy in Western Asia was durably aected by the Arab Spring.emporary and permanent increases in public expenditures will drag on public nancesin many countries in the years ahead. While medium-run scal balances remain strong inmany Gul countries, the break-even price o oil or GCC countries as a whole is estimated

New unemployment

scheme in Saudi Arabia

reveals large hidden

unemployment

Budget decits increased in

oil-importing countries

Prolonged armed violence is aecting sensitive social abrics. While the ongoing de-struction o physical and human capital in the Syrian Arab Republic will complicate eorts to rebuildthe country and create a new orm o social cohesion, the Syrian crisis is also progressively dismantling

and reshaping trade and knowledge networks in the region with potentially long-lasting eects.

Year-on-year change in goods trade ow, January–July, 2011 and 2012

Percentage

From

Jordan From Lebanon

From Syrian

Arab Republic

From

Turkey

To Iraq -14.2 -3.2 N.A. 37.2

To Jordan 14.6 -51.6 30.2

To Lebanon -19.0 -14.4 17.1

To Syrian Arab Republic -17.6 28.5 -67.4

To Turkey 102.2 -35.3 -82.9

Sources: Jordan Department o Statistics, available rom http://www.dos.gov.jo/dos_home_e/main/index.htm(accessed on October 15, 2012); Lebanese Customs http://www.customs.gov.lb/customs/index.htm (accessedon October 15, 2012); Turkish Statistical Institute, available rom http://www.turkstat.gov.tr/Start.do (accessed onOctober 15, 2012).

Box IV.3 (cont’d)




to have increased rom $49 per barrel in 2008 to $79 in 2012, with Bahrain and Oman

being most vulnerable to a potential drop in oil price.

Oil-importing countries possessing limited policy buers reacted more cautious-

ly to political unrest. Civil servant pay raises and energy subsidies widened the budget decitto over 6 per cent o GDP in Jordan. Lebanon’s scal stance remained neutral during the

rst hal o 2012, but a proposed public sector salary increase may widen the budget decit.In Israel, several recommendations o the rajtenberg Committee, created in

2011 in the wake o social unrest, have been accepted by the Government, but the pro-

jected rise o the budget decit to 3.4 per cent o GDP in 2012 is more directly related tosteady military spending, which amounted to more than 6 per cent o GDP. In urkey,

slowing growth is expected to have increased the budget decit rom an estimated 1.4 per

cent o GDP in 2011 to more than 2.0 per cent in 2012. Fiscal balances in urkey and

across the region are orecast to deteriorate next year.Ination declined across the region during the rst three quarters o 2012 in

the context o high commodity prices but weakening external and domestic demand. In

GCC countries, ination remained at about 3 per cent or below, except in Saudi Arabia.

Te housing component o the consumer price index was negative in Bahrain, Qatar and

the United Arab Emirates, caused by excess supply and limited domestic demand pres-sures. Te pass-through eect o high ood and energy prices may keep ination above 10

per cent in Yemen. In Jordan and Lebanon, ination is likely to remain above 4 per cent

in 2012, a slight decline compared to 2011.

In Israel, the consumer price index grew by 2.1 per cent during the rst three

quarters o 2012 ollowing high ood and housing prices, about one percentage point lowerthan last year. In urkey, demand-led inationary pressures progressively weakened dur-

ing the year, but higher ood and energy prices as well as value-added tax increases pushed

up ination, which may decelerate to 7 per cent at the end o the year. Barring a revival

o domestic and external demand pressures or a crisis that pushes up commodity prices,

ination will likely decline urther across the region in 2013.

Policies related to the use o conventional monetary instruments remained un-changed in most countries o the region in 2012. Policy rates in GCC countries that have

their currencies pegged to the dollar remained constant, almost mirroring the stance o the

Fed. Growing money stock improved liquidity conditions, contributing to slightly lower

unding costs, which had increased in the wake o the Arab Spring. Meanwhile, Jordanraised its policy rate by 50 basis points in February to deend the national currency, setting

the overnight repurchase agreement rate at 4.75 per cent.

Te depreciating urkish lira stabilized against the dollar at the end o 2011,

as the central bank tightened monetary policy by raising overnight lending rates and wid-

ening the interest rate corridor. In parallel, reserve requirement ratios were reduced inorder to prevent an undesirable tightening in liquidity conditions. In 2012, as the current-

account decit progressively declined along with domestic demand, monetary authorities

continued to reduce the eective unding rate rom 11 per cent in January to less than7 per cent in September. Ination remained above target. In Israel, weakening demand-

driven inationary pressures led the central bank to loosen monetary policy three timesduring the rst hal o the year, setting the interest rate at 2.25 per cent. As most countries

across the region tie their monetary policy to the stance o central banks in advanced

economies, the monetary loosening required to respond to the a grim growth perspective

may only occur in those countries with independent monetary policies in 2013.

High ood and energy

prices spurred weak

inationary pressures

Borrowing costs declined in

most countries




Te diverging economic perormance in the region is also reected in diering trends in external imbalances. While record oil revenues boosted external surpluses inoil-exporting countries, higher import bills burdened existing decits in oil-importing countries. In the GCC countries, current-account surpluses range rom about 8 per cento GDP in the United Arab Emirates to more than 40 per cent in Kuwait. Oil production

outages caused by pipeline attacks in Yemen contributed to the external decit. Jordan’s and Lebanon’s current-account decits widened as a result o highcommodity prices and related increases in import bills, weaker export demand and declin-ing revenue rom tourism. Foreign reserves dropped by 37 per cent in Jordan over the rsthal o the year and reserve accumulation stalled in Lebanon.

Te trade decit also widened in Israel, putting the current-account balanceinto decit in 2012. Weakening external demand led to a drop in manuacturing exports,including or high-tech goods. urkish manuactures have started to penetrate markets in

Asia, making the country less dependent on exports to European markets. Te current-ac-count decit is expected to remain high at about 7 per cent in 2010. While external imbal-ances across the region are structura l, their magnitude in the years ahead largely dependson commodity price developments. Te discovery o gas resources in the Mediterranean is

expected to generate external surpluses or Israel rom 2014.In the outlook, Western Asia aces three major downside risks. First, a more

pronounced jump in oil prices—owing, or example, to renewed domestic social unrest orrising tensions around the Strait o Hormuz—could ra ise the oil-price risk premium andexacerbate existing current-account and scal imbalances. Second, i the nancial woesand deeper scal austerity in developed countries were to trigger a global downturn, a sustained drop in the oil price would negatively aect scal and, eventually, social stability in oil-exporting countries. Finally, inaction in relation to the dire employment situationand, more broadly, the ailure to implement eective diversication strategies based ona more inclusive development paradigm represent major risks to long-run stability andprosperity in the region.

Latin America and the Caribbean: a modest accelerationin growth is expected

Latin America and the Caribbean are expected to see a modest acceleration in growth to3.9 per cent in 2013, up rom 3.1 per cent in 2012. Tis continued solid growth trajectory is closely tied to the perormance o the Brazilian economy, which is expected to expand by 4.0 per cent in 2013. Mexico and Central America are orecast to average a growth rate o 3.9 per cent, similar to that o 2012, but vulnerable to economic conditions in the UnitedStates. In line with the regional picture, the Caribbean countries will register an accelerationin growth to 3.7 per cent in 2013, 0.8 percentage points higher than in 2012 (gure IV.10).

During 2012, economic conditions deteriorated as the stagnation in the devel-

oped world and the slowdown in China aected exports rom the region. As a result, GDPgrowth decelerated to 3.1 per cent in 2012, rom 4.3 per cent in 2011 and 6.0 per cent in2010. Economic growth in South American countries slowed to 2.7 per cent, with Braziland Argentina contributing greatly to the overall picture. Resilient domestic demand con-tinues to drive growth in most o Latin America. Net export demand expanded in Mexicoand Central America, benetting rom the ragile recovery in the United States, whileSouth American economies were mainly aected by the economic slowdown in China

Record-high oil prices

widened external

imbalances in oil-exporting

and importing countries

Uncertain outlook or

oil prices weighs on risk

perceptions in the region




1.0

1.7

2.2

2.3

2.5

3.2

3.5

3.5

3.7

3.7

3.8

3.9

3.9

4.0

4.0

4.2

4.2

4.4

4.4

4.5

4.6

4.7

4.7

5.1

5.8

6.9

7.0

7.5

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0

Jamaica

Barbados

El Salvador

Trinidad and Tobago

Venezuela, Bolivarian Republic of

Argentina

Cuba

Honduras

Guatemala

Caribbean

Mexico

Mexico and Central America


South America

Brazil

Nicaragua

Uruguay

Costa Rica

Ecuador

Colombia

Chile

Bolivia, Plurinational State of

Dominican Republic

Guyana

Peru

Paraguay

Haiti

Panama

Figure IV.10

GDP growth orecasts in Latin America and the Caribbean, 2013

Source: UN/DESA.




and the euro area recession. Indeed, the trade sector constitutes the main impact channel

o the global downturn in the region (box IV.4). Te dire economic situation in Europe is

urther transmitted to the region through lower workers’ remittances, aecting Colombia

and Ecuador in particular.Despite the 2012 slowdown, labour market indicators continued to show a

good perormance, evidenced by continued increases in employment rates, higher real wages, increased emale participation rates and lower unemployment. For the region as a

whole, urban unemployment reached a historic low o 6.4 per cent in 2012. In the rst hal

o the year, it was less than 6 per cent in Brazil, Ecuador, Mexico, Panama and Uruguay.Improved employment conditions strengthened private consumption, a key driver o GDP

growth in recent years. During 2012, however, some signs o weakening emerged. Job

creation slowed in Argentina, the Bolivarian Republic o Venezuela, Paraguay and Peru.

Nonetheless, employment conditions are likely to remain steady without much urtherimprovement during 2013.

Te outlook or ination is airly stable. Te average annual ination rate or

the region was 6.0 per cent in 2012, down by 0.9 percentage points rom 2011, and is

expected to average 6.0 per cent in 2013. Increasing inationary pressures might emerge

i the shi ts towards more expansionary monetary policies are pushed much urther, or i there is a new surge in international ood prices, especially or grains, which would aect

ination in Central America and the Caribbean in particular. However, there is no clear

sign that core ination is trending upward.

Most countries in the region still have monetary policy space to promote eco-

nomic activity should global or domestic economic conditions deteriorate in 2013. However,given already robust private consumer demand, monetary expansion would need to be cau-

tious. About hal o the economies in the region began providing more monetary stimulus

when the global downturn began to aect exports and economic growth. Te most notable

case is Brazil, which started to reduce interest rates in August 2011. Te central bank has

since reduced the reerence rate by 525 basis points to a historic low o 7.25 per cent.

Colombia, the Dominican Republic, Guatemala and Paraguay also reduced policy rates.Te exchange rates remain at higher levels compared to those beore the global

downturn, but there were diverging trends during 2012. Colombia, Chile and Peru have

experienced an appreciation o their domestic currencies, while Brazil and Argentina saw

theirs depreciate. Te volatile behaviour o capital markets and exchange rates led many central banks, or example those o Argentina, Bahamas, Brazil, Colombia, Peru and

Uruguay, to intervene actively in oreign-exchange markets. Te tendency towards oreign-

exchange purchases suggests that central banks were more concerned about avoiding local

currency appreciation than depreciation. As a result, most countries increased their level o

international reserves in the last year. Looking ahead, the QE measures in developed econ-omies will l ikely underpin urther appreciation pressures, which might lead to additional

interventions. Some countries continued to implement other macroprudential policies, like

nancial regulation reorms, changes to the reserve requirements and liquidity injections.Te Government o the Plurinational State o Bolivia, or example, implemented a tempo-

rary tax on dollar sales, amounting to 0.7 per cent o the transaction value.Fiscal balances are expected to move towards urther consolidation in 2013.

Te budget decit averaged 2.0 per cent o GDP or the region as a whole in 2012. Te pri-

mary budget balance also showed a small decit o 0.1 per cent o GDP. Nevertheless, scal

conditions vary widely across countries. Many have ample space to conduct countercyclical

Labour market indicators

will remain strong

Monetary policy has shited

rom targeting ination

to promoting economic

activity

Many countries are well

positioned to implement

countercyclical

scal policies




scal policies. South American countries like Chile, Peru and the Plurinational State o Bolivia have relatively more scal space. In addition, Chile, Ecuador and Peru recently introduced tax reorms aimed at increasing the tax base. By contrast, chronic decits inCentral America have become a concern, but recent tax and other scal reorms in ElSalvador, Guatemala, Honduras, Nicaragua and Panama are expected to improve scal

balances in the coming years. Meanwhile, Caribbean public decits also widened during the crisis owing to increased spending. In most Caribbean countries, public debt as a percentage o GDP remains very high.

Given the slowdown in exports, current-account balances in the region areexpected to deteriorate or the mineral exporters, in particular. For the region as a whole,trade surplus declined in value terms in 2012, as export growth slowed to 2.0 per cent whileimport growth accelerated to 7.5 per cent. Te export growth slowdown is attributablemainly to the all in exports rom South America to the EU and China, with Argentina,Brazil and Chile being especially aected by the decline in exports to China (box IV.4). By contrast, exports rom Central America and Mexico to the EU still increased. In addition,international prices or the region’s main export commodities showed declines in 2012, sothat the regional terms o trade also suered a slight decline. Only the hydrocarbon-ex-

porting countries and exporters o ood products, like Argentina, Paraguay and Uruguay,posted an increase in their terms o trade.

Te major risks are tilted towards the downside o the baseline estimations. A more pronounced slowdown or renewed nancial turmoil in the euro area would havea relatively modest eect in the region as a whole, but it would aect South America more strongly. South American countries in particular, however, have policy space let torespond with countercyclical measures. A worsening scenario in the United States wouldmost strongly aect the Caribbean, Central America and Mexico through export, tourismand workers’ remittances channels. Additionally, a hard landing in China would strongly aect the countries in South America that are heavily reliant on primary commodity exports. Finally, there is also an increasing concern in relation to the QE measures im-plemented in developed countries, particularly regarding the potential eects o capital

ow and exchange-rate volatility. Considering the current slowdown in regional exports,urther currency appreciation would provide a disincentive to economic diversication.

The region’s current-

account decit is widening

Downside risks will aect

South America more

strongly

The efects o the global downturn on Latin American exports

Over the past decade, a main driver o growth in Latin America and the Caribbean has been the high-er demand or its export products, most notably the primary goods exported by South Americancountries. However, the current global economic slowdown reduced the region’s growth rate o merchandise exports rom 28 per cent in the rst hal o 2011 to a mere 4 per cent in the rst hal o 2012. This slowdown reects less rapid growth in volumes and a all in the prices o export goods.

The most signicant decline has been seen in shipments to the EU, with export values alling by 4 per

cent during the period (table). While the average price o export goods decreased by 3.4 per cent, theprices or mineral and metal exports declined more signicantly by 9.1 per cent.

The global downturn has brought about a deceleration in growth across the board orLatin American exports, but the severity o the impact varies considerably. South American countrieshave been most adversely aected, largely owing to their heavy dependence on primary commodi-ties as principal export products. The mineral and metal exporters (Chile, Peru), and Brazil have seenthe highest reduction in the value o their exports during the rst hal o 2012. Although this result

Box IV.4




can partly be attributed to a deceleration in the growth o export volumes, it is predominantly owingto a signicant drop in the prices o the raw materials exported by these countries. In the rst hal o 2012, prices o raw materials declined on average by 6 per cent rom a year ago. A second actorbehind the all in the value o South American exports is the relative importance o the EU as a

destination market. In act, the most severe drop in exports or these countries in 2012 was registeredin their trade with the euro area. By contrast, South America’s energy exporters experienced a signi-cant increase in the expor t value, averaging 9.9 per cent in the rst hal o 2012. This can be attributedto the sustained high price o oil and increased oil demand rom European countries, ollowing thetightening o EU sanctions against the Islamic Republic o Iran.

While Mexico and the Central American countries have also seen a signicant slowdownin export growth in 2012, these countries still continued to register a moderate increase compared tothe previous year. Costa Rica even saw a higher growth rate in the rst hal o 2012 compared to 2011,rising rom 8 per cent to 12 per cent. The relatively stronger perormance o this subregion reectsthe greater share o manuactured goods in the export basket and the predominance o the UnitedStates as trading partner. Over the past year, growth o import demand in the United States, while stillsluggish, outpaced that o other developed regions.

In sum, the global downturn has aected the economies o Latin America and the

Caribbean primarily through the export channel, with signicant reductions in the prices o manymajor export products. This slowdown in export growth not only aects GDP growth directly butalso indirectly through cutbacks or delays in investment. Indeed, many investment decisions in natu-ral resource sectors in Latin America are mainly driven by the uctuations o international commodityprices. This situation highlights the prospective additional constraints that the current quantitativeeasing measures in the developed world—through their potential eect on the region’s currencies—might put on regional growth.

Latin America: year-on-year export changes, rst hal o 2012

Percentages

Region/Countries Value Volume Price

Value by destination

USA EU Asia

Latin

America

Latin America 4.1 7.5 -3.4 4.3 -4.0 7.5 3.1

Central America 4.2 7.4 -3.2 4.8 2.5 10.1 5.5

Exporters of

hydrocarbonsa 9.9 10.9 -1.0 -2.9 4.7 18.2 12.6

Exporters of minerals

& metalsb -1.0 8.1 -9.1 -3.1 -16.0 4.4 2.2

Exporters of foodc -0.6 2.6 -3.2 8.7 -17.0 -1.4 -0.6

Brazil -0.9 6.7 -7.6 17.4 -6.2 5.3 -7.9

Mexico 7.6 6.4 1.2 5.5 19.2 18.0 18.6

Source: UN/ECLAC.

a Plurinational State o Bolivia, Ecuador, Bolivarian Republic o Venezuela and Colombia.b Chile and Peru.c Argentina, Paraguay, Uruguay.

Box IV.4 (cont’d)



Statistical annex



143

Country classication

Data sources, country classications

and aggregation methodologyTe statistical annex contains a set o data that the World Economic Situation and Prospects (WESP) employs to delineate trends in various dimensions o the world economy.

Data sources

Te annex was prepared by the Development Policy and Analysis Division (DPAD) o the Department o Economic and Social Aairs o the United Nations Secretariat (UN/DESA). It is based on inormation obtained rom the Statistics Division and the PopulationDivision o UN/DESA, as well as rom the ve United Nations regional commissions, theUnited Nations Conerence on rade and Development (UNCAD), the United Nations

World ourism Organization (UNWO), the International Monetary Fund (IMF), the World Bank, the Organization or Economic Cooperation and Development (OECD),and national and private sources. Estimates or the most recent years were made by DPADin consultation with the regional commissions, UNCAD, UNWO and participantsin Project LINK, an international collaborative research group or econometric modelling coordinated jointly by DPAD and the University o oronto. Forecasts or 2013 and 2014are primarily based on the World Economic Forecasting Model o DPAD, with supportrom Project LINK.

Data presented in WESP may dier rom those published by other organi-zations or a series o reasons, including dierences in timing, sample composition andaggregation methods. Historical data may dier rom those in previous editions o WESP because o updating and changes in the availability o data or individual countries.

Country classications

For analytical purposes, WESP classies a ll countries o the world into one o three broadcategories: developed economies, economies in transition and developing economies. Tecomposition o these groupings, specied in tables A, B and C, is intended to reectbasic economic country conditions. Several countries (in particular the economies intransition) have characteristics that could place them in more than one category; however,or purposes o analysis, the groupings have been made mutually exclusive. Within eachbroad category, some subgroups are dened based either on geographical location or onad hoc criteria, such as the subgroup o “major developed economies”, which is based onthe membership o the Group o Seven. Geographical regions or developing economiesare as ollows: Arica, East Asia, South Asia, Western Asia, and Latin America and theCaribbean.a

In parts o the analysis, a distinction is made between uel exporters and uelimporters rom among the economies in transition and the developing countries. Aneconomy is classied as a uel exporter i the share o uel exports in its total merchandise

a Names and composition o geographical areas ollow those specied in the statistical paper

entitled “Standard country or area codes or statistical use” (ST/ESA/STAT/SER.M/49/Rev. 4).




exports is greater than 20 per cent and the level o uel exports is at least 20 per cent higherthan that o the country’s uel imports. Tis criterion is drawn rom the share o uelexports in the total value o world merchandise trade. Fuels include coal, oil and naturalgas (table D).

For other parts o the analysis, countries have been classied by their level o

development as measured by per capita gross national income (GNI). Accordingly, coun-tries have been grouped as high-income, upper middle income, lower middle income andlow-income (table E). o maintain compatibility with similar classications used else-

where, the threshold levels o GNI per capita are those established by the World Bank.Countries with less than $1,025 GNI per capita are classied as low-income countries,those with between $1,026 and $4,035 as lower middle income countries, those with be-tween $4,036 and $12,475 as upper middle income countries, and those with incomes o more than $12,476 as high-income countries. GNI per capita in dollar terms is estimatedusing the World Bank Atlas method,b and the classication in table E is based on data or2011.

Te list o the least developed countries (LDCs) is decided upon by the UnitedNations Economic and Social Council and, ultimately, by the General Assembly, on the

basis o recommendations made by the Committee or Development Policy. Te basiccriteria or inclusion require that certain thresholds be met with regard to per capita GNI,a human assets index and an economic vulnerability index.c As at 30 November 2012,there were 48 LDCs (table F).

WESP also makes reerence to the group o heavily indebted poor countries(HIPCs), which are considered by the World Bank and IMF as part o their debt-relie initiative (the Enhanced HIPC Initiative).d In September 2012, there were 39 HIPCs (seetable G).

Aggregation methodology

Aggregate data are either sums or weighted averages o individua l country data. Unless

otherwise indicated, multi-year averages o growth rates are expressed as compound an-nual percentage rates o change. Te convention ollowed is to omit the base year in a multi-year growth rate. For example, the 10-year average growth rate or the decade o the2000s would be identied as the average annual growth rate or the period rom 2001 to2010.

WESP utilizes exchange-rate conversions o national data in order to aggregateoutput o individual countries into regional and global totals. Te growth o output ineach group o countries is calculated rom the sum o gross domestic product (GDP)o individual countries measured at 2005 prices and exchange rates. Data or GDP in2005 in national currencies were converted into dollars (with selected adjustments) andextended orwards and backwards in time using changes in real GDP or each country.Tis method supplies a reasonable set o aggregate growth rates or a period o about 15

years, centred on 2005.

b See http://data.worldbank.org/about/country-classications.

c Handbook on the Least Developed Country Category: Inclusion, Graduation and Special Support

Measures (United Nations publication, Sales No. E.07.II.A.9). Available rom http://www.un.org/

esa/analysis/devplan/cdppublications/2008cdphandbook.pd.

d IMF, Debt Relie Under the Heavily Indebted Poor Countries (HIPC) Initiative. Available rom http://

www.im.org/external/np/exr/acts/pd/hipc.pd.



145Country classiication

Te exchange-rate based method diers rom the one mainly applied by theIMF and the World Bank or their estimates o world and regional economic growth,

which is based on purchasing power parity (PPP) weights. Over the past two decades, thegrowth o world gross product (WGP) on the basis o the exchange-rate based approachhas been below that based on PPP weights. Tis is because developing countries, in the

aggregate, have seen signicantly higher economic growth than the rest o the world in the1990s and 2000s and the share in WGP o these countries is larger under PPP measure-ments than under market exchange rates.

Table A

Developed economies

Europe

Other countries Major developed economies (G7)European Union Other Europe

EU-15

AustriaBelgiumDenmark FinlandFranceGermanyGreeceIrelandItalyLuxembourgNetherlandsPortugalSpainSwedenUnited Kingdom

New EU member States

BulgariaCyprusCzech RepublicEstoniaHungaryLatviaLithuaniaMaltaPolandRomaniaSlovakiaSlovenia

IcelandNorway

Switzerland

AustraliaCanada

JapanNew ZealandUnited States

CanadaJapan

FranceGermanyItalyUnited KingdomUnited States




Table BEconomies in transition

South-Eastern Europe Commonwealth o Independent States and Georgiaa

AlbaniaBosnia and HerzegovinaCroatiaMontenegroSerbia

The ormer Yugoslav Republic o Macedonia

ArmeniaAzerbaijanBelarusGeorgiaa

KazakhstanKyrgyzstanRepublic o MoldovaRussian Federation

Tajikistan TurkmenistanUkraineUzbekistan

a Georgia ocially let the Commonwealth o Independent States on 18 August 2009. However, its perormanceis discussed in the context o this group o countries or reasons o geographic proximity and similarities ineconomic structure.




Table C

Developing economies by regiona

Arica Asia Latin America and the Caribbean

North Arica

AlgeriaEgyptLibyab

Morocco Tunisia

Sub-Saharan Arica

Central AricaCameroonCentral Arican RepublicChadCongoEquatorial GuineaGabonSao Tome and Prinicipe

East Arica

BurundiComorosDemocratic Republic o the CongoDjiboutiEritreaEthiopiaKenyaMadagascarRwandaSomaliaSudanUgandaUnited Republic o Tanzania

Southern AricaAngolaBotswanaLesothoMalawiMauritiusMozambiqueNamibiaSouth AricaZambiaZimbabwe

East Asia

Brunei DarussalamChinaHong Kong SARc

IndonesiaMalaysiaMyanmarPapua New GuineaPhilippinesRepublic o KoreaSingapore

Taiwan Province o China ThailandViet Nam

South Asia

Bangladesh

IndiaIran (Islamic Republic o)NepalPakistanSri Lanka

Western Asia

BahrainIraqIsraelJordanKuwaitLebanonOmanQatarSaudi ArabiaSyrian Arab Repuplic

TurkeyUnited Arab EmiratesYemen

Caribbean

BarbadosCubaDominican RepublicGuyanaHaitiJamaica

Trinidad and TobagoMexico and Central America

Costa RicaEl SalvadorGuatemalaHondurasMexicoNicaraguaPanama

South AmericaArgentinaBolivia (Plurinational State o )BrazilChileColombiaEcuadorParaguayPeruUruguayVenezuela (Bolivarian Republico )

West AricaBeninBurkina FasoCape VerdeCôte d’Ivoire

GambiaGhanaGuineaGuinea-BissauLiberiaMaliMauritaniaNigerNigeriaSenegalSierra Leone

Togoa Economies systematically monitored by the Global Economic Monitoring Unit o DPAD.b The name o the Libyan Arab Jamahiriya was ocially changed to Libya on 16 September 2011.c Special Administrative Region o China.




Table D

Fuel-exporting countries

Economies in

transition

Developing countries

Latin America

and the Caribbean Arica East Asia South Asia Western Asia

AzerbaijanKazakhstanRussian Federation

TurkmenistanUzbekistan

Bolivia(Plurinational State o )

ColombiaEcuador

Trinidad and TobagoVenezuela(Bolivarian Republic o)

AlgeriaAngolaCameroonChadCongoCôte d'IvoireEgyptEquatorial GuineaGabonLibyaNigeriaSudan

Brunei DarussalamIndonesiaViet Nam

Iran (IslamicRepublic o)

BahrainIraqKuwaitOmanQatarSaudi ArabiaUnited ArabEmirates

Yemen




Table E

Economies by per capita GNI in 2011a

High-income Upper middle income Lower middle income Low-income

Australia

AustriaBahrainBarbadosBelgiumBrunei DarussalamCanadaCroatiaCyprusCzech RepublicDenmark Equatorial GuineaEstoniaFinlandFranceGermanyGreeceHong Kong SARb

HungaryIcelandIrelandIsraelItalyJapanKuwaitMontenegroLuxembourgMaltaNetherlandsNew Zealand

NorwayOmanPolandPortugalQatarRepublic o KoreaSaudi ArabiaSingaporeSlovakiaSloveniaSpainSwedenSwitzerland

Taiwan Province o China

Trinidad and TobagoUnited Arab EmiratesUnited KingdomUnited States

Algeria

AngolacArgentinaAzerbaijanBelarusBosnia and HerzegovinaBotswanaBrazilBulgariaChileChinaColombiaCosta RicaCubaDominican RepublicEcuadorGabonIran (Islamic Republic o)JamaicaJordanKazakhstanLatviaLebanonLibyaLithuaniaMalaysiaMauritiusMexicoNamibiaPanama

Papua New GuineaPeruRomaniaRussian FederationSerbiaSouth Arica

Thailand The ormer Yugoslav

Republic o Macedonia Tunisia Turkey Turkmenistanc

UruguayVenezuela

(Bolivarian Republic o)

Albaniad

ArmeniaBolivia (PlurinationalState o)

CameroonCape VerdeCongoCôte d'IvoireDjiboutiEgyptEl SalvadorGeorgiaGhanaGuatemalaGuyanaHondurasIndiaIndonesiaIraqLesothoMoroccoNicaraguaNigerNigeriaPakistanParaguayPhilippinesRepublic o MoldovaSao Tome and PrinicipeSenegal

Sri LankaSudanSyrian Arab RepuplicUkraineUzbekistanViet NamYemenZambia

Bangladesh

BeninBurkina FasoBurundiCentral Arican RepublicChadComorosDemocratic Republic o the Congo

EritreaEthiopiaGambiaGuineaGuinea-BissauHaitiKenyaKyrgyzstanLiberiaMadagascarMalawiMaliMauritaniad

MozambiqueMyanmarNepalNigerRwandaSierra LeoneSomalia

Tajikistan

TogoUgandaUnited Republic o TanzaniaZimbabwe

a Economies systematically monitored or the World Economic Situation and Prospects report and included in theUnited Nations’ global economic orecast.

b Special Administrative Region o China.c Indicates the country has been shited upward by one category rom previous year’s classication.d Indicates the country has been shited downward by one category rom previous year’s classication.




Table F


As of November 2011

Arica East Asia South Asia Western AsiaLatin America and the Caribbean

AngolaBeninBurkina FasoBurundiCentral Arican RepublicChadComorosDemocratic Republico the Congo

DjiboutiEquatorial GuineaEritreaEthiopiaGambiaGuineaGuinea-BissauLesothoLiberiaMadagascarMalawiMaliMauritaniaMozambiqueNigerRwandaSao Tome and PrincipeSenegalSierra LeoneSomalia

Sudan TogoUgandaUnited Republic o TanzaniaZambia

CambodiaaKiribatia

Lao People’sDemocratic Republica

MyanmarSamoaa, b

Solomon Islandsa

Timor Lestea

Tuvalua

Vanuatua

AghanistanaBangladeshBhutana

Nepal

Yemen Haiti

Note: At its sixty-seventh session, the United Nations General Assembly will ormally include the Republic o South Sudan, which became a StateMember o the United Nations on 14 July 2011, in the least developed country category.

a Not included in the WESP discussion because o insucient data.b Samoa will graduate rom the list o the least developed countries in January 2014.




Table G

Heavily indebted poor countries

As of September 2012

Post-completion point HIPCsa Interim HIPCsb Pre-decision point HIPCsc

Aghanistan

BeninBoliviaBurkina FasoBurundiCameroonCentral Arican RepublicCongoCôte d'IvoireDemocratic Republic o the CongoEthiopiaGambiaGhanaGuineaGuinea-BissauGuyanaHaitiHondurasLiberiaMadagascarMalawiMaliMauritaniaMozambiqueNicaraguaNigerRwandaSao Tome and PrincipeSenegalSierra Leone

TogoUgandaUnited Republic o TanzaniaZambia

Chad

Comoros

Eritrea

SomaliaSudan

Note: South Sudan is not eligible or potentially eligible or debt relie under the HIPC Initiative given that, as anewly created country, it cannot meet the HIPC indebtedness criterion which is bound by the end-2004 andend-2010 cut-o dates. See, IMF, “Eligibility to use the Fund’s acilities or concessional nancing: Republic o SouthSudan”, 1 August 2012, available rom http://www.im.org/external/np/pp/eng/2012/080112.pd.

a Countries that have qualied or irrevocable debt relie under the HIPC Initiative.b Countries that have qualied or assistance under the HIPC Initiative (that is to say, have reached decision

point), but have not yet reached completion point.c Countries that are potentially eligible and may wish to avail themselves o the HIPC Initiative or the

Multilateral Debt Relie Initiative (MDRI).




Table H

Small island developing States

American SamoaAnguillaAntigua and BarbudaArubaBahamasBarbadosBelizeBritish Virgin IslandsCape VerdeCommonwealth o Northern MarianasComorosCook IslandsCubaDominicaDominican RepublicFijiFrench Polynesia

GrenadaGuamGuinea-BissauGuyanaHaitiJamaicaKiribatiMaldivesMarshall Islands

MauritiusMicronesia (Federated States o )MontserratNauruNetherlands AntillesNew CaledoniaNiuePalauPapua New GuineaPuerto RicoSamoaSao Tome and PrincipeSeychellesSingaporeSolomon IslandsSt. Kitts and NevisSt. Lucia

St. Vincent and the GrenadinesSuriname

Timor-Leste Tonga Trinidad and Tobago TuvaluU.S. Virgin IslandsVanuatu

Table ILandlocked developing countries

AghanistanArmeniaAzerbaijanBhutanBolivia (Plurinational State o )BotswanaBurkina FasoBurundiCentral Arican RepublicChadEthiopiaKazakhstanKyrgystan

Lao People's Democratic RepublicLesothoMalawiMali

Republic o MoldovaMongoliaNepalNigerParaguayRwandaSwaziland

Tajikistan The ormer Yugoslav Republic o Macedonia TurkmenistanUgandaUzbekistanZambia

Zimbabwe



Annex tables



Annex

List o tables

A. 1 Developed economies: rates o growth o real GDP, 2004-2014 ...................................................................................... 155A. 2 Economies in transition: rates o growth o real GDP, 2004-2014 .................................................................................... 156A. 3 Developing economies: rates o growth o real GDP, 2004-2014 .................................................................................... 157A. 4 Developed economies: consumer price ination, 2004-2014........................................................................................... 159A. 5 Economies in transition: consumer price ination, 2004-2014 ......................................................................................... 160A. 6 Developing economies: consumer price ination, 2004-2014 ......................................................................................... 161A. 7 Developed economies: unemployment rates, 2004-2014 .................................................................................................. 163A. 8 Economies in transition and developing economies: unemployment rates, 2003-2012 ................................ 165A. 9 Major developed economies: quarterly indicators o growth,

unemployment and ination, 2010-2012....................................................................................................................................... 167A.10 Selected economies in transition: quarterly indicators o growth and ination, 2010-2012 ......................... 168A.11 Major developing economies: quarterly indicators o growth,

unemployment and ination, 2010-2012....................................................................................................................................... 169

A.12 Major developed economies: nancial indicators, 2003-2012 .......................................................................................... 171A.13 Selected economies: real eective exchange rates, broad measurement, 2003-2012 ...................................... 172

A.14 Indices o prices o primary commodities, 2003-2012 ........................................................................................................... 174

A.15 World oil supply and demand, 2004-2013 ..................................................................................................................................... 175

A.16 World trade: changes in value and volume o exports and imports,

by major country group, 2004-2014 .................................................................................................................................................. 176

A.17 Balance o payments on current accounts, by country or country group,

summary table, 2003-2011 ...................................................................................................................................................................... 178

A.18 Balance o payments on current accounts, by country or country group, 2003-2011 ...................................... 179

A.19 Net ODA rom major sources, by type, 1990-2011 ................................................................................................................... 182

A.20 Total net ODA ows rom OECD Development Assistance Committee

countries, by type, 2002-2011 ................................................................................................................................................................ 183

A.21 Commitments and net ows o nancial resources, by selected multilateral institutions, 2002-2011 .... 184A.22 Greenhouse gas emissions o Annex I Parties to the United Nations

Framework Convention on Climate Change, 1990-2014 ..................................................................................................... 185



155Annex tables

Table A.1

Developed economies: rates o growth o real GDP, 2004–2014


2004-2011a 2004 2005 2006 2007 2008 2009 2010 2011 2012b 2013c 2014c

Developed economies 1.1 2.9 2.4 2.8 2.6 0.0 -3.8 2.6 1.4 1.1 1.1 2.0United States 1.2 3.5 3.1 2.7 1.9 -0.3 -3.1 2.4 1.8 2.1 1.7 2.7Canada 1.7 3.2 3.1 2.7 2.1 1.1 -2.8 3.2 2.6 1.8 1.5 2.8

Japan 0.3 2.4 1.3 1.7 2.2 -1.0 -5.5 4.5 -0.7 1.5 0.6 0.8

Australia 2.7 3.8 3.3 2.6 4.9 2.2 1.5 2.4 2.3 3.0 2.6 3.3New Zealand 1.2 4.3 3.1 2.3 2.9 -0.2 -2.3 1.7 1.3 2.1 2.1 2.7

European Union 1.2 2.6 2.1 3.3 3.2 0.3 -4.3 2.1 1.5 -0.3 0.6 1.7

EU-15 1.0 2.4 1.9 3.1 3.0 0.1 -4.4 2.1 1.4 -0.4 0.5 1.6Austria 1.7 2.6 2.4 3.7 3.7 1.4 -3.8 2.1 2.7 0.8 1.3 2.0

Belgium 1.4 3.3 1.8 2.7 2.9 1.0 -2.8 2.4 1.8 -0.3 0.5 1.5Denmark 0.4 2.3 2.4 3.4 1.6 -0.8 -5.8 1.3 0.8 1.1 1.2 1.3

Finland 1.4 4.1 2.9 4.4 5.3 0.3 -8.5 3.3 2.7 1.5 1.2 1.6

France 0.9 2.5 1.8 2.5 2.3 -0.1 -3.1 1.7 1.7 0.1 0.3 1.1Germany 1.5 1.2 0.7 3.7 3.3 1.1 -5.1 4.2 3.0 0.8 1.0 1.8

Greece -0.5 4.4 2.3 5.5 3.0 -0.2 -3.3 -3.5 -6.9 -6.1 -1.8 0.6

Ireland 1.3 4.4 5.9 5.4 5.4 -2.1 -5.5 -0.8 1.4 0.5 1.7 2.4Italy 0.0 1.7 0.9 2.2 1.7 -1.2 -5.5 1.8 0.4 -2.4 -0.3 1.4

Luxembourg 2.3 4.4 5.3 4.9 6.6 -0.7 -4.1 2.9 1.7 -0.1 0.9 2.0Netherlands 1.4 2.2 2.0 3.4 3.9 1.8 -3.7 1.6 1.0 -0.5 0.7 1.4

Portugal 0.2 1.6 0.8 1.4 2.4 0.0 -2.9 1.4 -1.7 -3.2 -2.2 0.2

Spain 1.2 3.3 3.6 4.1 3.5 0.9 -3.7 -0.3 0.4 -1.6 -1.4 0.8Sweden 2.2 4.2 3.2 4.3 3.3 -0.6 -5.0 6.6 3.9 1.7 1.8 2.8

United Kingdom 0.9 2.9 2.8 2.6 3.6 -1.0 -4.0 1.8 0.9 -0.3 1.2 2.3

New EU member States 3.3 5.6 4.8 6.5 6.0 4.1 -3.6 2.3 3.1 1.2 2.0 2.9Bulgaria 3.1 6.7 6.4 6.5 6.4 6.2 -5.5 0.4 1.7 1.0 2.3 3.5

Cyprus 2.3 4.2 3.9 4.1 5.1 3.6 -1.9 1.1 0.5 -1.2 0.5 1.3Czech Republic 3.1 4.7 6.8 7.0 5.7 3.1 -4.5 2.5 1.7 -0.9 1.1 2.0

Estonia 2.5 6.3 8.9 10.1 7.5 -4.2 -14.1 3.3 8.3 3.0 3.0 3.5

Hungary 0.7 4.8 4.0 3.9 0.1 0.9 -6.8 1.3 1.6 -1.0 0.6 2.2Latvia 1.6 8.9 10.1 11.2 9.6 -3.3 -17.7 -0.9 5.5 4.0 4.0 4.0Lithuania 2.7 7.4 7.8 7.8 9.8 2.9 -14.8 1.5 5.9 3.0 3.0 3.0

Malta 2.4 -0.5 3.7 2.9 4.3 4.1 -2.7 2.3 2.1 -0.7 1.1 1.8Poland 4.5 5.3 3.6 6.2 6.8 5.1 1.6 3.9 4.3 2.6 2.6 3.5

Romania 2.7 8.5 4.2 7.9 6.3 7.3 -6.6 -1.6 2.5 1.0 2.3 3.0

Slovakia 4.7 5.1 6.7 8.3 10.5 5.8 -4.9 4.4 3.2 2.4 2.0 2.6Slovenia 1.9 4.4 4.0 5.8 7.0 3.4 -7.8 1.2 0.6 -2.0 0.5 2.2

Other Europe 1.7 3.2 2.8 3.2 3.4 1.2 -1.9 1.9 1.7 1.7 1.5 1.9

Iceland 1.5 7.8 7.2 4.7 6.0 1.2 -6.6 -4.0 2.6 2.6 2.7 2.6

Norway 1.2 4.0 2.6 2.5 2.7 0.0 -1.7 0.7 1.4 3.5 2.2 2.4Switzerland 2.2 2.4 2.7 3.8 3.8 2.2 -1.9 3.0 1.9 0.3 0.8 1.4

Memorandum items:

North America 1.2 3.4 3.1 2.7 1.9 -0.2 -3.0 2.5 1.9 2.1 1.7 2.7

Western Europe 1.2 2.6 2.1 3.3 3.2 0.4 -4.2 2.1 1.5 -0.2 0.6 1.7Asia and Oceania 0.7 2.6 1.6 1.8 2.6 -0.5 -4.4 4.1 -0.2 1.7 1.0 1.3

Major developed economies 1.0 2.8 2.3 2.6 2.3 -0.3 -3.9 2.8 1.4 1.2 1.2 2.1Euro area 1.0 2.2 1.7 3.3 3.0 0.4 -4.4 2.1 1.5 -0.5 0.3 1.4

Source: UN/DESA, based on data o the United Nations Statistics Division and individual national sources.

Note: Country groups are calculated as a weighted average o individual country growth rates o gross domestic product (GDP), where weights are

based on GDP in 2005 prices and exchange rates.

a Average percentage change.b Partly estimated.

c Baseline scenario orecasts, based in part on Project LINK and the UN/DESA World Economic Forecasting Model.




Table A.2

Economies in transition: rates o growth o real GDP, 2004–2014


2004-2011a 2004 2005 2006 2007 2008 2009 2010 2011 2012b 2013c 2014c

Economies in transition 4.3 7.7 6.5 8.3 8.6 5.2 -6.6 4.4 4.5 3.5 3.6 4.2

South-Eastern Europe 2.3 5.8 5.1 4.8 5.5 3.7 -4.3 0.4 1.1 -0.6 1.2 2.6

Albania 4.8 5.7 5.8 5.4 5.9 7.5 3.3 3.9 2.0 1.5 2.5 3.0

Bosnia and Herzegovina 3.5 6.3 8.0 6.0 6.1 5.6 -2.9 0.7 1.7 0.2 1.0 2.1

Croatia 1.1 4.1 4.3 4.9 5.1 2.1 -6.9 -1.4 0.0 -1.3 0.8 2.5

Montenegro 4.2 4.4 4.2 8.6 10.7 6.9 -5.7 2.5 3.2 0.4 1.5 3.0

Serbia 2.4 9.3 5.4 3.6 5.4 3.8 -3.5 1.0 1.6 -1.0 1.3 2.8

The ormer Yugoslav Republico Macedonia 3.6 4.6 4.4 5.0 6.1 5.0 -0.9 2.9 3.0 1.0 2.3 2.5

Commonwealth o Independent States and Georgiad 4.5 7.9 6.7 8.7 8.9 5.3 -6.8 4.8 4.8 3.8 3.8 4.4

Net uel exporters 4.6 7.3 7.0 8.8 8.9 5.4 -6.3 4.7 4.7 4.0 3.8 4.4Azerbaijan 15.3 10.2 26.4 34.5 25.1 10.8 9.3 5.0 0.1 1.2 2.5 3.8

Kazakhstan 6.9 9.6 9.7 10.6 8.9 3.3 1.2 7.3 7.5 5.5 5.0 5.5

Russian Federation 4.0 7.2 6.4 8.2 8.5 5.2 -7.8 4.3 4.3 3.7 3.6 4.2

Turkmenistan 11.5 5.0 13.0 11.4 11.8 14.7 6.1 9.2 14.7 9.0 8.0 7.0

Uzbekistan 8.2 7.7 7.0 7.3 9.5 9.0 8.1 8.5 8.3 7.0 6.9 6.1

Net uel importers 3.7 11.4 5.0 8.1 8.4 4.6 -9.8 5.2 5.4 2.8 3.3 4.3

Armenia 5.4 10.5 13.9 13.2 13.7 6.9 -14.1 2.2 4.7 3.8 4.0 4.0

Belarus 7.3 11.4 9.4 10.0 8.6 10.2 0.2 7.7 5.3 3.9 3.1 5.0

Georgiad 6.1 5.9 9.6 9.4 12.3 2.3 -3.8 6.3 7.2 4.8 5.0 4.0

Kyrgyzstan 3.9 7.0 -0.2 3.1 8.5 8.4 2.9 -0.5 5.7 0.2 3.5 4.0

Republic o Moldova 4.3 7.4 7.5 4.8 3.0 7.8 -6.0 7.1 6.4 0.6 2.0 3.0

Tajikistan 6.7 10.3 6.7 6.6 7.8 7.6 4.0 6.5 7.4 7.0 5.7 5.0Ukraine 1.8 12.1 2.7 7.3 7.9 2.3 -14.8 4.2 5.2 2.0 3.2 4.0


Note: Country groups are calculated as a weighted average o individual country growth rates o gross domestic product (GDP), where weights arebased on GDP in 2005 prices and exchange rates.

a Average percentage change.b Partly estimated.c Baseline scenario orecasts, based in part on Project LINK and the UN/DESA World Economic Forecasting Model.d Georgia ocially let the Commonwealth o Independent States on 18 August 2009. However, its perormance is discussed in the context o this

group o countries or reasons o geographic proximity and similarities in economic structure.



157Annex tables

Table A.3

Developing economies: rates o growth o real GDP, 2004-2014


2004-2011a 2004 2005 2006 2007 2008 2009 2010 2011 2012b 2013c 2014c

Developing countriesd 6.2 7.2 6.8 7.6 7.9 5.1 2.7 7.7 5.7 4.7 5.1 5.6

Arica 4.5 5.9 5.8 5.9 6.2 5.2 2.7 4.7 1.1 5.0 4.8 5.1

North Arica 2.9 4.8 5.1 5.4 4.7 4.6 3.2 4.1 -6.0 7.5 4.4 4.9

Sub-Saharan Arica 5.2 6.4 6.1 6.2 6.9 5.5 2.5 5.0 4.5 3.9 5.0 5.2

Net uel exporters 4.6 6.7 6.6 5.9 7.0 5.9 4.2 5.1 -2.1 6.4 5.2 5.4

Net uel importers 4.4 5.1 5.0 5.9 5.4 4.6 1.4 4.3 4.2 3.7 4.4 4.8

East and South Asia 7.7 7.8 8.1 9.0 9.9 5.8 5.5 9.0 6.8 5.5 6.0 6.3

East Asia 7.9 7.9 8.0 9.2 10.2 6.4 5.2 9.2 7.1 5.8 6.2 6.5

South Asia 7.1 7.5 8.2 8.3 8.9 3.3 7.0 8.3 5.8 4.4 5.0 5.7

Net uel exporters 5.4 5.2 5.7 6.0 7.2 3.9 4.4 6.1 4.7 3.2 3.7 4.7

Net uel importers 8.0 8.1 8.3 9.3 10.2 6.0 5.6 9.3 7.0 5.7 6.2 6.5

Western Asia 4.8 8.4 6.6 6.9 4.7 3.8 -1.5 6.7 6.7 3.3 3.3 4.1

Net uel exporters 5.0 8.5 6.0 7.3 4.4 5.6 -0.6 5.7 6.6 4.9 3.9 3.5


Latin America and the Caribbean 4.0 5.9 4.6 5.7 5.6 4.0 -1.9 6.0 4.3 3.1 3.9 4.4

South America 4.8 7.1 5.1 5.6 6.7 5.4 -0.2 6.5 4.5 2.7 4.0 4.4

Mexico and Central America 2.5 4.1 3.4 5.3 3.6 1.5 -5.3 5.4 4.0 4.0 3.9 4.6

Caribbean 5.0 3.7 8.1 10.3 6.4 3.5 0.9 3.5 2.7 2.9 3.7 3.8

Net uel exporters 4.6 10.6 7.1 8.0 7.0 4.6 -0.7 1.6 5.0 4.5 3.6 3.9


Memorandum items

Least developed countries 6.7 7.7 7.9 7.9 9.0 7.8 5.1 5.8 3.7 3.7 5.7 5.5

Sub-Saharan Arica (excludingNigeria and South Arica) 6.0 6.6 6.7 6.7 8.1 6.7 4.0 5.5 4.4 3.9 5.5 5.3

Arica sub-regions as classied bythe Economic Commission or Aricae

Central Arica 4.5 9.3 5.3 2.5 5.9 5.0 3.0 4.8 5.0 5.0 4.7 4.4

Eastern Arica 6.6 7.0 7.6 7.0 7.6 6.7 4.4 7.0 6.3 5.6 6.1 6.2

North Arica 3.3 4.9 5.2 5.8 5.2 4.9 3.7 4.1 -5.6 5.4 4.2 4.6

Southern Arica 4.5 5.3 6.1 6.7 7.3 4.9 -0.3 3.5 3.7 3.5 4.1 4.4

West Arica 5.9 7.6 5.8 5.1 5.6 5.9 5.6 6.8 6.5 6.3 6.6 6.8

East Asia (excluding China) 4.5 5.9 5.0 5.7 6.0 2.8 0.2 7.7 4.2 3.1 3.7 4.2

South Asia (excluding India) 4.9 5.9 6.0 6.2 7.1 2.1 4.1 5.4 3.4 1.5 2.3 3.5

Western Asia(excluding Israel and Turkey) 4.9 8.4 5.9 7.0 4.6 5.6 0.0 5.6 6.0 3.6 3.4 3.7

Arab Statesf 4.3 7.2 5.6 6.6 4.8 5.4 1.2 5.1 2.2 4.1 3.6 3.9

Landlocked developing economies 7.1 7.6 8.3 9.1 8.7 6.6 3.4 7.4 6.5 4.9 5.3 5.3Small island developing economies 5.4 6.0 7.2 8.6 7.4 3.0 0.1 8.4 3.7 2.1 2.9 3.5

Major developing economies

Argentina 7.4 9.0 9.2 8.5 8.7 6.8 0.8 9.2 8.9 2.5 3.2 4.2

Brazil 4.0 5.7 3.2 4.0 6.1 5.2 -0.3 7.5 2.7 1.3 4.0 4.4




Table A.3 (cont’d)

2004-2011a 2004 2005 2006 2007 2008 2009 2010 2011 2012b 2013c 2014c

Chile 4.5 7.0 6.2 5.7 5.2 3.3 -1.0 6.1 6.0 5.1 4.6 4.9

China 10.9 10.1 11.3 12.7 14.2 9.6 9.2 10.3 9.2 7.7 7.9 8.0

Colombia 4.8 5.3 4.7 6.7 6.9 3.5 1.7 4.0 5.9 4.4 4.5 4.8Egypt 5.3 4.1 4.5 6.8 7.1 7.2 4.6 5.2 1.8 1.1 3.2 4.7

Hong Kong SARg 4.5 8.5 7.1 7.0 6.4 2.3 -2.6 7.0 5.0 1.4 2.5 3.1

India 8.1 8.3 9.3 9.3 9.8 3.9 8.2 9.6 6.9 5.5 6.1 6.5

Indonesia 5.8 5.0 5.7 5.5 6.3 6.0 4.6 6.2 6.5 6.2 6.2 6.3

Iran, Islamic Republic o 4.5 5.1 5.3 6.1 8.3 0.6 4.0 5.9 2.0 -1.9 -0.9 1.5

Israel 4.5 4.9 4.9 5.8 5.9 4.1 1.1 5.0 4.6 2.9 2.8 6.0

Korea, Republic o 3.8 4.6 4.0 5.2 5.1 2.3 0.3 6.3 3.6 2.1 3.0 3.5

Malaysia 4.6 6.8 5.3 5.6 6.3 4.8 -1.5 7.2 5.1 5.0 4.4 4.9

Mexico 2.3 4.1 3.2 5.2 3.3 1.2 -6.0 5.5 3.9 3.9 3.8 4.6

Nigeria 6.8 10.5 6.5 6.0 6.5 6.3 6.9 7.8 7.4 6.4 6.8 7.2

Pakistan 4.4 7.4 7.7 6.2 5.7 1.6 3.6 3.5 3.0 3.8 4.2 4.4

Peru 7.1 5.0 6.8 7.7 8.9 9.8 0.8 8.8 6.9 6.0 5.8 5.6Philippines 4.7 6.7 4.8 5.2 6.6 4.2 1.1 7.6 3.7 6.2 5.4 5.5

Saudi Arabia 3.8 5.3 5.6 3.2 2.0 4.2 0.1 4.6 6.8 5.5 3.7 3.0

Singapore 6.4 9.2 7.4 8.8 8.9 1.7 -1.0 14.8 4.9 1.4 2.5 3.3

South Arica 3.5 4.6 5.3 5.6 5.5 3.6 -1.5 2.9 3.1 2.5 3.1 3.8

Taiwan Province o China 4.2 6.2 4.7 5.4 6.0 0.7 -1.8 10.7 4.0 1.1 2.4 2.9

Thailand 3.2 6.3 4.2 4.9 5.4 1.6 -1.1 7.5 0.1 5.3 4.6 5.0

Turkey 4.7 9.4 8.4 6.9 4.7 0.7 -4.8 9.2 8.5 3.0 3.4 4.2

Venezuela, Bolivarian Republic o 4.7 18.3 10.3 9.9 8.8 5.3 -3.2 -1.5 4.0 5.1 2.5 2.9


Note: Country groups are calculated as a weighted average o individual country growth rates o gross domestic product (GDP), where weights arebased on GDP in 2005 prices and exchange rates.

a Average percentage change.b Partly estimated.c Baseline scenario orecasts, based in part on Project LINK and the UN/DESA World Economic Forecasting Model.d Covering countries that account or 98 per cent o the population o all developing countries.e The United Nations Economic Commission or Arica maintains a classication o countries which is not ully compatible with the current WESP

classication.f Currently includes data or Algeria, Bahrain, Comoros, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, Qatar, Saudi

Arabia, Somalia, Sudan, Syrian Arab Republic, Tunisia, United Arab Emirates and Yemen.g Special Administrative Region o China.




Table A.5

Economies in transition: consumer price ination, 2004–2014

Annual percentage changea

2004 2005 2006 2007 2008 2009 2010 2011 2012b 2013c 2014c

Economies in transition 9.9 11.7 9.2 9.0 14.6 10.7 6.8 9.5 6.6 7.4 5.8

South-Eastern Europe 4.0 6.4 5.7 3.6 7.8 3.4 2.8 5.0 3.9 3.4 3.3

Albania 2.3 2.4 2.4 2.9 3.3 2.3 3.6 3.6 2.3 2.5 2.7

Bosnia and Herzegovina -0.5 3.7 6.1 1.5 7.4 -0.3 2.2 3.7 2.5 2.5 3.0

Croatia 2.1 3.3 3.2 2.9 6.0 2.4 1.1 2.3 3.2 2.6 2.7

Montenegro 2.1 2.7 3.0 4.3 9.0 3.9 0.5 3.0 3.0 3.0 2.7

Serbia 11.0 16.1 11.7 6.4 12.4 8.2 6.2 11.2 6.5 5.8 5.0

The ormer Yugoslav Republico Macedonia -0.4 0.5 3.2 2.3 8.3 -0.8 1.5 3.9 3.2 3.0 2.6

Commonwealth o Independent Statesand Georgiad 10.5 12.2 9.5 9.5 15.2 11.4 7.2 9.9 6.9 7.7 6.1

Net uel exporters 10.4 12.2 9.7 9.3 14.3 11.1 7.0 8.6 5.3 7.1 5.8

Azerbaijan 6.7 9.5 8.2 16.6 20.7 1.4 5.8 8.0 2.3 2.6 4.1Kazakhstan 6.9 7.5 8.6 10.8 17.1 7.3 7.2 8.4 5.1 6.5 5.0

Russian Federation 10.9 12.7 9.7 9.0 14.0 11.7 7.0 8.5 5.1 7.0 5.7

Turkmenistan 5.9 10.7 8.2 6.3 14.5 -2.6 4.6 11.1 10.3 12.1 10.0

Uzbekistan 6.6 10.0 14.2 12.3 12.7 14.1 9.5 12.8 14.0 13.0 11.0

Net uel importers 10.8 11.8 8.4 11.2 21.2 13.4 8.8 18.2 17.2 12.0 7.9

Armenia 7.0 0.6 2.9 4.4 8.9 3.4 8.2 7.7 4.2 4.3 4.3

Belarus 18.3 10.4 7.0 8.2 14.8 12.9 7.7 52.5 68.1 28.0 15.5

Georgiad 5.7 8.2 9.2 9.2 10.1 1.8 7.1 8.5 0.5 4.3 3.0

Kyrgyzstan 4.1 4.4 5.6 10.1 24.5 6.9 8.1 16.6 3.1 5.0 5.0

Republic o Moldova 12.5 12.0 12.8 12.3 12.8 -0.1 7.4 7.5 4.4 4.4 5.0

Tajikistan 7.1 7.2 10.0 13.4 20.9 6.4 6.5 12.5 12.4 8.0 9.0

Ukraine 9.0 13.5 9.1 12.8 25.2 15.9 9.4 8.0 2.3 8.0 6.0Source: UN/DESA, based on data o the Economic Commission or Europe.

a Data or country groups are weighted averages, where weights or each year are based on 2005 GDP in United States dollars.b Partly estimated.c Baseline scenario orecasts, based in part on Project LINK and the UN/DESA World Economic Forecasting Model.d Georgia ocially let the Commonwealth o Independent States on 18 August 2009. However, its perormance is discussed in the context o this

group o countries or reasons o geographic proximity and similarities in economic structure.



161Annex tables

Table A.6

Developing economies: consumer price ination, 2004-2014

Annual percentage changea

2004 2005 2006 2007 2008 2009 2010 2011 2012b 2013c 2014c

Developing countries by region 5.2 4.9 5.3 19.4 8.2 4.3 5.5 6.4 5.4 5.2 5.0

Arica 7.8 8.2 12.4 157.6 10.9 7.8 6.4 8.0 8.1 6.6 5.9

North Arica 4.7 2.6 4.1 5.3 9.2 5.9 5.3 7.2 6.4 5.1 4.7

Sub-Saharan Arica 9.3 11.0 16.6 234.0 11.7 8.7 6.9 8.4 9.0 7.3 6.6



East and South Asia 4.1 3.6 3.7 4.9 7.4 2.9 5.0 6.2 4.8 4.7 4.8

East Asia 3.5 2.9 2.7 3.9 6.0 0.6 3.2 4.9 2.9 3.1 3.4

South Asia 6.2 6.4 7.1 8.6 12.5 11.2 11.5 11.2 11.6 10.6 9.9



Western Asia 4.7 5.4 7.1 7.2 10.3 4.1 5.8 4.8 5.1 4.5 4.4



Latin America and the Caribbean 7.0 6.1 5.1 5.3 7.7 6.0 6.0 6.9 6.0 6.0 5.5

South America 7.0 7.1 5.7 5.7 8.8 6.7 7.1 8.8 7.2 7.3 6.7

Mexico and Central America 4.9 4.4 3.9 4.3 5.7 5.1 4.2 3.6 4.1 3.8 3.6

Caribbean 25.8 6.1 7.4 8.6 10.3 3.0 5.6 7.6 4.7 5.4 5.2



Memorandum items

Least developed countries 10.6 10.4 9.0 9.5 13.8 8.5 8.3 11.7 12.3 9.9 8.1

Sub-Saharan Arica (excludingNigeria and South Arica) 15.2 15.7 30.3 499.4 13.1 8.8 6.8 10.2 10.9 8.5 7.0

Arica sub-regions as classied bythe Economic Commission or Aricad

Central Arica 0.4 3.9 4.3 1.1 6.5 4.3 2.9 2.0 3.8 3.4 3.4

East Arica 7.4 10.8 10.9 10.7 21.7 12.6 7.2 19.5 14.4 10.0 8.6

North Arica 5.1 3.2 4.4 5.6 9.7 6.4 6.2 8.1 8.6 6.7 5.5

Southern Arica 10.1 10.6 25.9 473.1 10.2 7.7 5.4 5.7 5.9 4.9 5.1

West Arica 10.9 14.1 7.3 5.5 11.2 9.4 9.1 8.5 9.8 8.7 8.0

East Asia (excluding China) 3.1 3.9 3.9 3.1 6.1 1.9 3.0 4.2 3.0 3.1 3.2

South Asia (excluding India) 11.1 11.1 9.9 13.1 21.3 11.7 10.6 15.8 16.2 14.1 12.9

Western Asia(excluding Israel and Turkey) 3.1 4.3 6.4 7.3 11.2 2.9 4.5 4.0 4.7 3.9 3.9

Arab Statese 4.0 3.9 6.0 6.8 10.7 4.1 5.1 5.4 6.1 4.9 4.4

Landlocked developing economies 13.4 16.7 39.6 710.1 15.5 6.4 5.9 9.2 7.9 7.5 6.5Small island developing economies 10.4 2.9 3.7 4.6 7.7 1.8 3.8 5.8 4.7 4.6 3.9





2004 2005 2006 2007 2008 2009 2010 2011 2012b 2013c 2014c

Major developing economies

Argentina 4.4 9.6 10.9 8.8 8.6 6.3 10.8 15.7 11.3 10.2 9.8

Brazil 6.6 6.8 4.2 3.6 5.6 4.9 5.0 6.5 5.3 5.8 5.0Chile 1.1 3.1 3.4 4.4 8.7 0.3 1.4 4.4 3.0 2.5 3.0

China 3.9 1.9 1.6 4.8 6.0 -0.6 3.5 5.5 2.8 3.1 3.7

Colombia 5.9 5.0 4.3 5.5 7.0 4.2 2.3 3.4 3.2 3.1 3.1

Egypt 11.3 4.9 7.6 9.3 18.3 11.8 11.3 11.5 8.3 9.1 8.0

Hong Kong SARf -0.4 0.9 2.1 2.0 4.2 0.6 2.4 5.3 3.9 3.2 3.0

India 3.8 4.2 5.8 6.4 8.3 10.9 12.0 8.9 9.4 8.9 8.4

Indonesia 6.0 10.5 13.1 6.5 10.2 4.4 5.1 5.4 4.3 4.8 4.9

Iran, Islamic Republic o 14.8 13.4 11.9 17.2 25.5 13.5 10.1 20.6 23.0 20.0 18.0

Israel -0.4 1.3 2.1 0.5 4.6 3.3 2.7 3.4 2.4 2.1 3.0

Korea, Republic o 3.6 2.8 2.2 2.5 4.7 2.8 2.9 4.0 2.3 2.6 2.9

Malaysia 1.5 3.0 3.6 2.0 5.4 0.6 1.7 3.2 1.7 2.3 2.5

Mexico 4.7 4.0 3.6 4.0 5.1 5.3 4.2 3.4 4.0 3.7 3.5Nigeria 15.0 17.9 8.2 5.4 11.5 11.5 13.5 10.8 12.5 11.0 9.8

Pakistan 7.4 9.1 7.9 7.6 20.3 13.6 13.9 11.9 9.7 8.5 8.2

Peru 3.7 1.6 2.0 1.8 5.8 2.9 1.5 3.4 3.6 3.1 2.5

Philippines 4.8 6.5 5.5 2.9 8.3 4.1 3.9 4.6 3.3 3.7 3.9

Saudi Arabia 0.3 0.7 2.2 4.2 9.9 5.1 5.4 5.0 4.9 4.4 4.0

Singapore 1.7 0.4 1.0 2.1 6.5 0.6 2.9 5.3 5.2 4.4 3.2

South Arica -0.7 2.0 3.2 6.2 10.1 7.2 4.1 5.0 5.2 4.2 4.6

Taiwan Province o China 1.6 2.3 0.6 1.8 3.5 -0.9 1.0 1.4 2.1 1.9 1.8

Thailand 2.8 4.5 4.6 2.3 5.4 -0.9 3.3 3.8 3.1 3.5 3.2

Turkey 8.6 8.2 9.6 8.8 10.4 6.3 8.6 6.5 6.4 6.2 5.5

Venezuela, Bolivarian Republic o 21.7 16.0 13.7 18.7 31.4 28.6 29.1 26.0 23.1 24.2 22.5

Source: UN/DESA, based on IMF, International Financial Statistics.a Data or country groups are weighted averages, where weights are based on GDP in 2005 prices and exchange rates.b Partly estimated.c Baseline scenario orecasts, based in part on Project LINK and the UN/DESA World Economic Forecasting Model.d The United Nations Economic Commission or Arica maintains a classication o countries which is not ully compatible with the current WESP

classication.e Currently includes data or Algeria, Bahrain, Comoros, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, Qatar, Saudi

Arabia, Somalia, Sudan, Syrian Arab Republic, Tunisia, United Arab Emirates and Yemen.f Special Administrative Region o China.



163Annex tables

Table A.7

Developed economies: unemployment rates,a, b 2004–2014

Percentage of labour force

2004 2005 2006 2007 2008 2009 2010 2011 2012c 2013d 2014d

Developed economies 7.2 6.9 6.3 5.8 6.1 8.4 8.8 8.5 8.6 8.7 8.5

United States 5.5 5.1 4.6 4.6 5.8 9.3 9.6 9.0 8.1 7.7 7.3

Canada 7.2 6.8 6.3 6.0 6.1 8.3 8.0 7.5 7.4 7.4 7.1

Japan 4.7 4.4 4.1 3.8 4.0 5.1 5.1 4.6 4.7 5.1 5.0

Australia 5.4 5.0 4.8 4.4 4.2 5.6 5.2 5.1 5.4 5.5 5.7

New Zealand 4.1 3.8 3.9 3.7 4.2 6.1 6.5 6.5 6.5 6.2 5.8

European Union 9.2 9.0 8.3 7.2 7.0 9.0 9.6 9.6 10.4 10.9 10.6

EU-15 8.3 8.3 7.8 7.1 7.2 9.1 9.6 9.6 10.6 11.1 10.9

Austria 5.0 5.2 4.8 4.4 3.8 4.8 4.4 4.1 4.4 4.6 4.6

Belgium 8.4 8.4 8.3 7.5 7.0 7.9 8.3 7.2 7.4 7.6 7.2

Denmark 5.5 4.8 3.9 3.8 3.4 6.1 7.4 7.6 7.9 8.1 7.8

Finland 8.8 8.4 7.7 6.9 6.4 8.2 8.4 7.8 7.7 7.6 7.5

France 9.3 9.3 9.3 8.4 7.8 9.5 9.7 9.6 10.4 10.9 10.7Germany 10.5 11.3 10.3 8.7 7.5 7.8 7.1 6.0 5.5 5.6 5.8

Greece 10.5 9.9 8.9 8.3 7.7 9.5 12.6 17.7 24.0 26.2 27.7

Ireland 4.5 4.4 4.5 4.6 6.3 11.9 13.7 14.4 14.9 14.5 13.8

Italy 8.0 7.7 6.8 6.1 6.7 7.8 8.4 8.4 10.6 11.5 11.3

Luxembourg 5.0 4.6 4.6 4.2 4.9 5.1 4.6 4.8 5.4 6.4 6.4

Netherlands 5.1 5.3 4.3 3.6 3.1 3.7 4.5 4.5 5.2 5.7 5.8

Portugal 6.8 7.7 7.8 8.1 7.7 9.6 11.0 12.9 15.6 18.2 15.9

Spain 10.9 9.2 8.5 8.3 11.3 18.0 20.1 21.6 24.8 26.2 25.2

Sweden 7.4 7.6 7.0 6.1 6.2 8.3 8.4 7.5 7.6 7.9 7.7

United Kingdom 4.7 4.8 5.4 5.3 5.7 7.6 7.8 8.0 8.1 8.4 8.3

New EU member States 12.8 11.9 10.0 7.7 6.5 8.4 9.8 9.6 9.9 10.2 9.6

Bulgaria 12.0 10.1 9.0 6.9 5.6 6.8 10.2 11.0 11.7 11.2 10.3Cyprus 4.7 5.5 4.7 4.1 3.8 5.5 6.4 7.9 12.1 12.9 13.2

Czech Republic 8.3 7.9 7.1 5.3 4.4 6.7 7.1 6.9 7.5 8.3 7.7

Estonia 10.0 7.9 5.9 4.6 5.4 13.8 16.8 12.3 11.4 10.9 9.5

Hungary 6.1 7.2 7.5 7.4 7.8 10.0 11.1 10.8 11.2 10.4 9.9

Latvia 9.9 8.9 6.8 6.0 7.5 17.1 18.6 15.4 16.0 15.3 14.7

Lithuania 11.3 8.3 5.6 4.3 5.8 13.7 17.8 15.3 15.5 14.9 14.5

Malta 7.2 7.3 6.9 6.5 6.0 6.9 6.9 6.5 6.3 6.3 6.2

Poland 19.0 17.8 13.9 9.6 7.1 8.2 9.6 9.8 10.0 11.0 10.1

Romania 7.7 7.2 7.3 6.4 5.8 6.9 7.3 7.3 7.1 6.9 6.7

Slovakia 18.4 16.4 13.5 11.2 9.6 12.1 14.5 12.6 13.9 13.8 13.7

Slovenia 6.3 6.5 6.0 4.9 4.4 5.9 7.3 7.3 8.1 8.8 8.5





2004 2005 2006 2007 2008 2009 2010 2011 2012c 2013d 2014d

Other Europe 4.3 4.3 3.7 3.2 3.1 3.9 4.2 3.8 3.1 3.6 3.6

Icelande 3.1 2.6 2.9 2.3 3.0 7.2 7.6 7.1 6.6 6.2 5.9

Norway 4.3 4.5 3.4 2.5 2.6 3.2 3.6 3.2 3.0 3.2 3.1Switzerland 4.3 4.3 3.9 3.6 3.3 4.3 4.4 3.9 3.0 3.7 3.7

Memorandum items

Major developed economies 6.4 6.2 5.8 5.5 5.9 8.1 8.2 7.7 7.5 7.5 7.3

Euro area 9.2 9.2 8.5 7.6 7.6 9.6 10.1 10.1 11.3 11.8 11.6

Source: UN/DESA, based on data o the OECD and Eurostat.

a Unemployment data are standardized by the OECD and Eurostat or comparability among countries and over time, in conormity with thedenitions o the International Labour Organization (see OECD, Standardized Unemployment Rates: Sources and Methods (Paris, 1985)).

b Data or country groups are weighted averages, where labour orce is used or weights.c Partly estimated.d Baseline scenario orecasts, based in part on Project LINK and the UN/DESA World Economic Forecasting Model.e Not standardized.



165Annex tables

Table A.8

Economies in transition and developing economies: unemployment rates,a 2003-2012

Percentage of labour force

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012b

South-Eastern Europe

Albaniac 15.0 14.4 14.1 13.8 13.2 12.5 13.6 13.5 13.3 13.1

Bosnia and Herzegovina .. .. .. 31.1 29.0 23.4 24.1 27.2 27.6 28.0

Croatia 13.9 13.7 12.6 11.1 9.6 8.4 9.1 12.3 14.2 14.8

Montenegro 33.4 31.1 30.3 29.6 19.4 16.8 19.1 19.7 19.7 20.0

Serbia 14.6 18.5 20.8 20.9 18.1 13.6 16.1 19.2 23.0 25.5

The ormer Yugoslav Republic o Macedonia 36.7 37.2 37.3 36.0 34.9 33.8 32.2 32.0 31.4 31.2

Commonwealth o Independent States and Georgiad

Armeniac 10.2 9.4 7.6 7.2 6.4 6.3 6.8 7.1 6.0 5.8

Azerbaijan 10.7 8.4 7.6 6.8 6.5 6.0 5.9 5.6 5.4 5.4

Belarusc 3.1 1.9 1.5 1.1 1.0 0.8 0.9 0.7 0.6 0.5

Georgiad 11.5 12.6 13.8 13.6 13.3 16.5 16.9 16.3 15.1 14.3

Kazakhstan 8.8 8.4 8.1 7.8 7.3 6.6 6.6 5.8 5.4 5.2Kyrgyzstanc 2.9 2.9 3.3 3.5 3.3 2.8 2.8 2.5 2.6 2.5

Republic o Moldovac 7.9 8.1 7.3 7.4 5.1 4.0 6.4 7.4 6.7 7.0

Russian Federation 8.2 7.8 7.2 7.2 6.1 6.4 8.4 7.5 6.6 6.1

Tajikistanc 2.3 2.0 2.1 2.3 2.5 2.1 2.1 2.2 2.1 2.1

Turkmenistanc 2.5 .. 3.7 .. 3.6 2.5 2.2 2.0 2.3 2.1

Ukraine 9.1 8.6 7.2 7.4 6.6 6.4 8.8 8.1 8.0 8.3

Uzbekistanc 0.3 0.4 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2

Arica

Algeria 23.7 17.7 15.3 12.3 13.8 11.3 10.2 10.0 10.0 ..

Botswana 23.8 .. .. 17.6 20.2 .. .. 17.8 .. ..

Egypt 11.9 10.3 11.2 10.7 8.9 8.7 9.4 9.0 12.2 12.6

Mauritius 7.7 8.4 9.6 9.1 8.5 7.2 7.3 7.8 7.9 8.0Morocco 11.9 10.8 11.0 9.7 9.8 9.6 9.1 9.1 8.9 ..

South Arica 29.8 27.0 26.6 25.5 23.3 22.9 24.0 24.9 24.2 24.5

Tunisiae .. .. 12.9 12.5 12.4 12.4 13.3 13.0 16.0 18.1

Developing America

Argentinaf, g 17.3 13.6 11.6 10.2 8.5 7.9 8.7 7.7 7.2 7.3

Barbados 11.0 9.8 9.1 8.7 7.4 8.1 10.0 10.8 11.2 12.1

Boliviaf 9.2 6.2 8.1 8.0 7.7 6.7 7.9 6.1 5.8 ..

Brazilh, i 12.3 11.5 9.8 10.0 9.3 7.9 8.1 6.7 6.0 5.7

Chile 9.5 10.0 9.2 7.7 7.1 7.8 10.8 8.2 7.1 6.5

Colombia j 16.4 15.1 13.6 12.5 11.1 11.3 12.6 11.9 10.9 10.9

Costa Rica 6.7 6.7 6.9 6.0 4.8 4.8 8.5 7.1 7.7 ..

Dominican Republic 16.7 18.4 17.9 16.2 15.6 14.1 14.9 14.3 14.6 14.5

Ecuadork 11.6 9.7 8.5 8.1 7.4 6.9 8.5 7.6 6.0 4.8

El Salvador 6.9 6.8 7.8 6.6 6.3 5.9 7.3 7.0 .. ..

Guatemala 3.4 3.1 .. .. .. .. .. 3.5 4.1 ..

Honduras 7.6 8.0 6.5 4.9 4.0 4.1 4.9 6.4 6.8 ..

Jamaica 11.4 11.7 11.3 10.3 9.8 10.6 11.4 12.4 12.6 13.7





2003 2004 2005 2006 2007 2008 2009 2010 2011 2012b

Mexico 4.6 5.3 4.7 4.6 4.8 4.9 6.7 6.4 6.0 5.8

Nicaragua 10.2 9.3 7.0 7.0 6.9 8.0 10.5 9.7 .. ..

Panama 15.9 14.1 12.1 10.4 7.8 6.5 7.9 7.7 5.4 5.4

Paraguayf 11.2 10.0 7.6 8.9 7.2 7.4 8.2 6.8 7.0 7.2

Peruf, l 9.4 9.4 9.6 8.5 8.4 8.4 8.4 7.9 7.7 7.5

Trinidad and Tobago 10.5 8.4 8.0 6.2 5.6 4.6 5.3 5.9 5.8 ..

Uruguayf 16.9 13.1 12.2 11.4 9.6 7.9 7.6 7.1 6.3 5.8

Venezuela, Bolivarian Republic o 18.0 15.3 12.4 09.9 8.4 7.3 7.9 8.7 8.3 8.6

Developing Asia

China 4.3 4.2 4.2 4.1 4.0 4.2 4.3 4.2 4.1 4.1

Hong Kong SARm 7.9 6.8 5.6 4.8 4.0 3.5 5.3 4.3 3.4 3.3

India .. 5.0 .. .. .. .. 9.4 .. .. ..

Indonesia 9.7 9.9 11.2 10.3 9.1 8.4 7.9 7.1 6.8 6.2

Iran, Islamic Republic o .. 10.3 11.5 .. 10.5 10.3 11.5 13.5 12.3 ..

Israel 10.7 10.4 9.0 8.4 7.3 6.1 7.6 6.6 5.6 6.8Jordan 14.8 12.5 14.8 14.0 13.1 12.7 12.9 12.5 12.3 12.1

Korea, Republic o 3.6 3.7 3.7 3.5 3.2 3.2 3.6 3.7 3.4 3.3

Malaysia 3.6 3.5 3.5 3.3 3.2 3.3 3.7 3.2 3.1 3.0

Pakistan 8.3 7.7 7.7 6.2 5.3 5.2 5.5 5.8 6.0 ..

Palestinian Occupied Territory 25.5 26.8 23.5 23.7 21.7 26.6 24.5 23.7 20.9 22.8

Philippinesn, o 10.2 10.9 7.8 7.9 7.3 7.4 7.5 7.3 7.2 7.0

Saudi Arabia 5.6 5.8 6.1 6.3 6.1 6.3 6.3 6.2 5.9 ..

Singapore 4.0 3.4 3.1 2.7 2.1 2.1 3.0 2.2 2.0 2.0

Sri Lankap 8.1 8.1 7.2 6.5 6.0 5.2 5.7 4.9 4.0 3.9

Taiwan Province o China 5.0 4.4 4.1 3.9 3.9 4.1 5.8 5.2 4.4 4.3

Thailand 2.2 2.1 1.8 1.5 1.4 1.4 1.5 1.0 0.8 0.7

Turkey 9.3 9.0 9.2 8.8 8.9 9.7 12.6 10.7 9.8 9.1Viet Namf 5.8 5.6 5.3 4.8 4.6 4.7 4.6 4.3 3.6 ..

Sources: UN/DESA, based on data o the Economic Commission or Europe (ECE); ILO LABORSTAT database and KILM 7th edit ion; EconomicCommission or Latin America and the Caribbean (ECLAC); and national sources.

a As a percentage o labour orce. Reects national denitions and coverage. Not comparable across economies.b Partly estimated.c End-o-period registered unemployment data (as a percentage o labour orce).d Georgia ocially let the Commonwealth o Independent States on 18 August 2009. However, its perormance is discussed in the context o this

group o countries or reasons o geographic proximity and similarities in economic structure.e New methodology starting in 2005.f Urban areas.g Break in series: new methodology starting in 2003.h Six main cities.i Break in series: new methodology starting in 2002. j Thirteen main cities.

k Covers Quito, Guayaquil and Cuenca.l Metropolitan Lima.m Special Administrative Region o China.n Partly adopts the ILO denition; that is to say, it does not include one ILO criterion, namely, “currently available or work”.o Break in series: new methodology starting in 2005.p Excluding Northern and Eastern provinces.



167Annex tables

Table A.9

Major developed economies: quarterly indicators o growth,

unemployment and ination, 2010-2012

Percentage

2010 2011 2012

I II III IV I II III IV I II III

Growth o gross domestic producta

(percentage change in seasonally adjusted data rom preceding quarter)

Canada 4.9 3.3 1.8 4.4 2.5 -0.8 5.8 2.1 1.7 1.7 0.6

France 1.2 2.6 1.6 1.6 3.5 0.2 0.8 0.1 -0.1 -0.2 0.9

Germany 2.7 9.1 2.8 2.4 5.0 1.8 1.5 -0.6 2.0 1.1 0.9

Italy 3.8 2.5 1.9 0.6 0.4 1.2 -0.6 -2.8 -3.1 -2.9 -0.7

Japan 5.1 5.1 4.7 -1.1 -8.0 -2.1 9.5 -1.2 5.2 0.3 -3.5

United Kingdom 2.4 2.9 2.5 -1.7 2.0 0.3 2.1 -1.4 -1.2 -1.5 3.9

United States 2.3 2.2 2.6 2.4 0.1 2.5 1.3 4.1 2.0 1.3 2.7

Major developed economiesb 2.9 3.6 2.8 1.4 -0.2 1.1 2.7 1.4 1.7 0.5 1.1

Euro area 1.9 4.2 1.5 1.4 2.6 0.9 0.3 -1.3 0.0 -0.7 -0.2Unemployment ratec

(percentage o total labour orce)

Canada 8.2 8.0 8.0 7.7 7.7 7.5 7.3 7.5 7.4 7.3 7.3

France 9.9 9.7 9.7 9.7 9.6 9.6 9.6 9.8 10.0 10.3 10.7

Germany 7.5 7.1 6.9 6.7 6.3 6.0 5.8 5.6 5.6 5.5 5.4

Italy 8.5 8.5 8.3 8.3 8.0 7.9 8.5 9.2 10.0 10.5 10.7

Japan 5.1 5.1 5.0 5.0 4.8 4.7 4.4 4.5 4.5 4.4 4.2

United Kingdom 7.9 7.8 7.7 7.8 7.7 7.9 8.3 8.3 8.1 7.9 ..

United States 9.8 9.6 9.5 9.6 9.0 9.0 9.1 8.7 8.3 8.2 8.1

Major developed economiesb 8.4 8.2 8.1 8.1 7.7 7.7 7.7 7.6 7.5 7.5 ..

Euro area 10.1 10.2 10.1 10.1 10.0 9.9 10.2 10.6 10.9 11.3 11.5

Change in consumer prices(percentage change rom the corresponding quarter o the previous year)

Canada 1.6 1.4 1.8 2.3 2.6 3.4 3.0 2.7 2.3 1.6 1.2

France 1.5 1.8 1.8 1.9 2.0 2.2 2.3 2.6 2.6 2.3 2.3

Germany 0.8 1.0 1.2 1.6 2.2 2.5 2.6 2.6 2.4 2.1 2.1

Italy 1.3 1.6 1.7 2.0 2.3 2.9 2.7 3.7 3.6 3.6 3.4

Japan -0.9 -0.7 -1.0 -0.3 -0.5 -0.4 0.1 -0.3 0.3 0.2 -0.4

United Kingdom 3.3 3.4 3.1 3.4 4.1 4.4 4.7 4.7 3.5 2.7 2.4

United States 2.3 1.8 1.2 1.3 2.2 3.4 3.8 3.3 2.8 1.9 1.6

Major developed economiesb 1.5 1.4 1.1 1.4 1.9 2.6 2.9 2.7 2.4 1.8 1.6

Euro area 1.1 1.6 1.7 2.0 2.5 2.8 2.7 2.9 2.7 2.5 2.5

Source: UN/DESA, based on Eurostat, OECD and national sources.

a Expressed as an annualized rate.b Calculated as a weighted average, where weights are based on 2005 GDP in United States dollars.c Seasonally adjusted data as standardized by OECD.




Table A.10

Selected economies in transition: quarterly indicators o growth and ination, 2010-2012

Percentage

2010 2011 2012


Rates o growth o gross domestic producta

Armenia 3.4 8.2 -2.9 2.4 1.2 3.9 6.5 5.3 5.6 6.6 ..

Azerbaijan 5.4 8.0 5.0 3.1 1.6 0.3 -0.1 -0.5 0.5 0.8 ..

Belarus 4.3 9.2 7.0 10.2 10.4 11.0 1.5 0.0 3.1 2.6 ..

Croatia -2.7 -3.0 0.1 -0.2 -1.2 0.6 0.8 -0.4 -1.3 -2.2 ..

Georgia 3.7 8.3 6.7 6.1 6.1 4.9 7.5 8.8 6.8 8.2 ..

Kazakhstan 7.1 8.0 7.5 7.3 6.8 7.4 6.8 8.7 5.6 5.5 ..

Kyrgyzstan 18.5 -2.2 -7.1 -1.8 0.6 8.1 11.4 1.0 -6.8 -4.6 ..

Republic o Moldova 4.4 4.8 5.1 4.6 6.9 7.1 6.9 6.7 1.0 0.8 ..

Russian Federation 3.5 4.9 3.8 4.9 4.0 3.4 5.0 4.8 4.9 4.0 ..

The ormer Yugoslav Republic o Macedonia 0.0 2.5 4.5 4.0 6.4 3.7 1.2 0.9 -1.3 -0.9 ..

Ukraine 4.5 5.4 3.3 3.7 5.4 3.9 6.5 4.7 2.0 3.0 ..Change in consumer pricesa

Armenia 9.1 6.8 8.1 8.7 11.1 8.8 5.7 5.1 3.3 1.0 ..

Azerbaijan 3.8 6.0 5.6 7.2 8.9 8.5 7.6 7.2 4.2 2.3 1.1

Belarus 6.1 6.8 7.7 10.0 12.6 31.7 63.1 102.4 107.8 82.4 52.3

Bosnia and Herzegovina 1.7 2.6 1.9 2.6 3.5 4.1 3.9 3.2 2.3 2.1 ..

Croatia 0.9 0.7 1.1 1.5 2.2 2.3 2.1 2.4 1.5 3.5 ..

Georgia 4.7 4.4 8.8 10.4 13.3 12.6 6.7 2.1 -1.3 -1.9 ..

Kazakhstan 7.3 6.9 6.6 7.6 8.5 8.4 8.9 7.7 5.1 4.9 ..

Kyrgyzstan 2.6 3.1 9.1 17.2 20.5 22.5 16.9 7.2 1.9 -0.3 ..

Republic o Moldova 5.8 8.0 7.9 7.9 6.1 7.1 8.8 8.5 6.2 4.1 ..

Russian Federation 7.2 5.9 6.2 8.2 9.5 9.5 8.1 6.6 3.8 3.8 6.0

The ormer Yugoslav Republic o Macedonia 0.3 0.9 2.1 3.1 3.9 4.7 3.7 3.3 2.4 2.2 ..Ukraine 11.2 8.3 8.5 9.5 7.7 10.8 8.5 5.0 2.9 0.4 ..

Source: UN/DESA, based on data o the Economic Commission or Europe, European Bank or Reconstruction and Development and national sources.

a Percentage change rom the corresponding period o the preceding year.



169Annex tables

Table A.11

Major developing economies: quarterly indicators o growth, unemployment and ination, 2010-2012

Percentage

2010 2011 2012


Rates o growth o gross domestic producta

Argentina 6.8 11.8 8.6 9.2 9.9 9.1 9.3 7.3 5.2 0.0 ..

Brazil 9.3 8.8 6.9 5.3 4.2 3.3 2.1 1.4 0.8 0.5 0.9

Chile 2.8 7.1 7.7 6.7 9.9 6.3 3.7 4.5 5.2 5.7 5.7

China 11.9 10.3 9.6 9.8 9.7 9.5 9.1 8.9 8.1 7.8 7.7

Colombia 3.8 4.5 3.0 4.7 5.1 4.9 7.5 6.2 4.7 4.9 ..

Ecuador 0.9 3.0 4.0 5.2 7.0 7.9 9.2 7.8 6.3 5.2 ..

Hong Kong SARb 7.9 6.4 6.6 6.4 7.8 5.1 4.3 2.8 0.7 1.2 1.3

India 13.0 9.5 8.9 10.0 9.7 9.0 6.9 6.2 5.6 3.9 2.8

Indonesia 5.9 6.3 5.8 6.8 6.4 6.5 6.5 6.5 6.3 6.4 6.2

Israel 2.2 6.0 5.3 6.4 6.9 3.5 5.2 3.0 3.3 3.5 3.4

Korea, Republic o 8.5 7.5 4.4 4.9 4.2 3.5 3.6 3.3 2.8 2.3 1.6Malaysia 10.1 9.0 5.2 4.8 5.1 4.3 5.7 5.2 5.1 5.6 5.2

Mexico 4.4 7.5 5.1 4.2 4.3 2.9 4.4 3.9 4.9 4.4 3.3

Philippines 8.4 8.9 7.3 6.1 4.9 3.6 3.2 4.0 6.3 6.0 7.1

Singapore 16.5 19.8 10.6 12.5 9.1 1.2 6.0 3.6 1.5 2.3 1.3

South Arica 1.7 3.1 2.7 3.8 3.5 3.0 3.1 3.2 2.4 3.1 2.3

Taiwan Province o China 12.9 13.0 11.2 6.5 6.6 4.5 3.4 1.9 0.4 -0.2 1.0

Thailand 12.0 9.2 6.6 3.8 3.2 2.7 3.7 -8.9 0.4 4.4 3.0

Turkey 12.6 10.4 5.3 9.3 12.1 9.1 8.4 5.0 3.3 2.9 ..

Venezuela, Bolivarian Republic o -4.8 -1.7 -0.2 0.5 4.8 2.6 4.4 4.9 5.8 5.4 ..

Unemployment ratec

Argentina 8.3 7.9 7.5 7.3 7.4 7.3 7.2 6.7 7.1 7.2 7.6

Brazil 7.4 7.3 6.6 5.7 6.3 6.3 6.0 5.2 5.8 5.9 5.4Chile 9.3 8.6 8.2 7.3 7.3 7.1 7.4 7.0 6.5 6.6 6.4

Colombia 13.0 12.0 11.5 10.7 12.4 11.1 10.4 9.3 11.6 10.5 10.2

Ecuador 9.1 7.7 7.4 6.1 7.0 6.4 5.5 5.1 4.9 5.2 4.6

Hong Kong SARb 4.4 4.8 4.4 3.7 3.4 3.7 3.4 3.1 3.3 3.3 3.5

Israel 7.0 5.9 7.2 6.5 5.7 5.2 6.1 6.8 6.8 6.9 6.7

Korea, Republic o 4.7 3.5 3.5 3.3 4.2 3.4 3.1 2.9 3.8 3.3 3.0

Malaysia 3.5 3.3 3.1 3.0 3.1 3.1 3.0 3.1 3.0 3.0 3.0

Mexico 5.3 5.2 5.6 5.3 5.2 5.2 5.6 4.9 4.9 4.8 5.2

Philippines 7.3 8.0 7.0 7.1 7.4 7.2 7.1 6.4 7.2 6.9 7.0

Singapore 2.2 2.2 2.1 2.2 1.9 2.1 2.0 2.0 2.1 2.0 1.9

South Arica 25.2 25.2 25.3 24.0 25.0 25.7 25.0 23.9 25.2 24.9 25.5

Taiwan Province o China 5.7 5.2 5.1 4.8 4.6 4.3 4.4 4.2 4.2 4.1 4.3 Thailand 1.1 1.3 0.9 0.8 0.8 0.6 0.6 0.6 0.7 0.9 0.6

Turkey 14.2 11.2 11.1 11.2 11.4 9.5 9.0 9.3 10.2 8.4 ..

Uruguay 7.4 7.4 6.6 6.0 6.3 6.2 6.0 5.5 5.7 6.5 6.4






2010 2011 2012


Change in consumer pricesa

Argentina 9.0 10.6 11.1 11.1 10.1 9.7 9.8 9.5 9.7 9.9 10.0Brazil 4.9 5.1 4.6 5.6 6.1 6.6 7.2 6.7 5.8 4.9 5.2

Chile -0.3 1.2 2.3 2.5 2.9 3.3 3.1 4.0 4.1 3.1 2.6

China 2.0 2.8 3.2 4.7 5.1 5.9 6.4 4.6 3.8 2.8 1.9

Colombia 2.0 2.1 2.3 2.7 3.3 3.0 3.5 3.9 3.5 3.4 3.1

Ecuador 4.0 3.3 3.6 3.4 3.4 4.1 4.9 5.5 5.6 5.1 5.1

Hong Kong SARb 1.9 2.6 2.3 2.7 3.8 5.1 6.5 5.7 5.2 4.2 3.0

India 15.3 13.6 10.3 9.2 9.0 8.9 9.2 8.4 7.2 10.1 9.8

Indonesia 3.7 4.4 6.2 6.3 6.8 5.9 4.7 4.1 3.7 4.6 4.5

Israel 3.5 2.8 2.0 2.5 4.0 4.1 3.3 2.5 1.8 1.6 1.8

Korea, Republic o 3.0 2.7 2.9 3.2 3.8 4.0 4.3 4.0 3.1 2.4 1.6

Malaysia 1.3 1.6 1.9 2.0 2.8 3.3 3.4 3.2 2.3 1.7 1.4

Mexico 4.8 4.0 3.7 4.3 3.5 3.3 3.4 3.5 3.9 3.9 4.6Philippines 3.9 3.8 3.9 3.5 4.5 4.9 4.7 4.7 3.1 2.9 3.5

Singapore 0.9 3.1 3.3 4.0 5.1 4.7 5.5 5.6 4.9 5.3 4.2

South Arica 5.4 4.2 3.3 3.4 3.8 4.7 5.5 6.3 6.2 5.8 5.3

Taiwan Province o China 1.3 1.1 0.4 1.1 1.3 1.6 1.3 1.4 1.3 1.7 3.0

Thailand 3.7 3.2 3.3 2.9 3.0 4.1 4.1 4.0 3.4 2.5 2.9

Turkey 9.3 9.2 8.4 7.4 4.3 5.9 6.4 9.2 10.5 9.4 9.0


Sources: IMF, International Financial Statistics, and national sources.

a Percentage change rom the corresponding quarter o the previous year.b Special Administrative Region o China.c Reects national denitions and coverage. Not comparable across economies.



171Annex tables

Table A.12

Major developed economies: nancial indicators, 2003–2012

Percentage

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012a

Short-term interest ratesb

Canada 3.0 2.3 2.8 4.2 4.6 3.3 0.7 0.8 1.2 1.2

Francec 2.3 2.1 2.2 3.1 4.3 4.6 1.2 0.8 1.4 0.7

Germanyc 2.3 2.1 2.2 3.1 4.3 4.6 1.2 0.8 1.4 0.7

Italyc 2.3 2.1 2.2 3.1 4.3 4.6 1.2 0.8 1.4 0.7

Japan 0.1 0.1 0.1 0.3 0.8 0.9 0.6 0.4 0.3 0.3

United Kingdom 3.7 4.6 4.7 4.8 6.0 5.5 1.2 0.7 0.9 0.9

United States 1.1 1.6 3.5 5.2 5.3 3.0 0.6 0.3 0.3 0.3

Long-term interest ratesd

Canada 4.8 4.6 4.1 4.2 4.3 3.6 3.2 3.2 2.8 1.9

France 4.1 4.1 3.4 3.8 4.3 4.2 3.7 3.1 3.3 2.7

Germany 4.1 4.0 3.3 3.8 4.2 4.0 3.2 2.7 2.6 1.5

Italy 4.3 4.3 3.6 4.1 4.5 4.7 4.3 4.0 5.4 5.7Japan 1.0 1.5 1.4 1.7 1.7 1.5 1.3 1.1 1.1 0.9

United Kingdom 4.5 4.9 4.4 4.5 5.0 4.6 3.7 3.6 3.1 1.9

United States 4.0 4.3 4.3 4.8 4.6 3.7 3.3 3.2 2.8 1.8

General government nancial balancese

Canada -0.1 0.8 1.5 1.6 1.4 -0.4 -4.8 -5.4 -4.5 -3.7

France -4.1 -3.6 -3.0 -2.4 -2.8 -3.3 -7.5 -7.1 -5.2 -4.7

Germany -4.2 -3.8 -3.3 -1.7 0.2 -0.1 -3.1 -4.1 -0.8 -0.7

Italy -3.6 -3.6 -4.5 -3.4 -1.6 -2.7 -5.4 -4.5 -3.9 -2.7

Japan -7.7 -5.9 -4.8 -1.3 -2.1 -1.9 -8.8 -8.4 -9.5 -9.9

United Kingdom -3.4 -3.5 -3.4 -2.7 -2.8 -5.1 -11.5 -10.2 -7.8 -7.7

United States -4.9 -4.4 -3.2 -2.0 -2.7 -6.4 -11.8 -11.2 -10.1 -8.6

Sources: UN/DESA, based on OECD, Economic Outlook ; OECD, Main Economic Indicators; and Eurostat.

a Average or the rst nine months or short- and long-term interest rates.b Three-month Interbank Rate.c From January 1999 onwards, represents the three-month Euro Interbank Oered Rate (EURIBOR).d Yield on long-term government bonds.e Surplus (+) or decit (-) as a percentage o nominal GDP. Estimates or 2012.




Table A.13

Selected economies: real eective exchange rates, broad measurement,a 2003–2012

Year 2000=100

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012b

Developed economies

Australia 111.8 121.2 128.1 133.8 142.8 141.0 130.6 146.1 157.3 157.7

Bulgaria 110.7 113.3 116.5 126.2 132.9 142.7 140.1 143.1 150.5 150.3

Canada 102.9 104.6 108.3 111.6 112.9 102.6 95.3 101.0 100.3 97.9

Czech Republic 117.4 121.7 129.1 134.0 139.4 156.5 148.8 149.5 155.7 150.4

Denmark 114.2 114.4 111.8 109.9 109.8 110.7 117.4 111.8 109.6 107.6

Euro area 117.3 121.0 119.5 121.3 126.1 131.1 125.4 117.5 120.5 114.8

Hungary 115.2 119.6 119.0 115.9 119.8 123.1 118.9 118.4 116.9 114.4

Japan 82.5 83.5 78.6 72.0 67.1 74.2 83.2 84.2 85.4 84.9

New Zealand 131.5 140.1 147.2 135.7 146.3 133.5 127.8 139.2 146.3 151.3

Norway 108.2 110.6 117.3 123.4 132.4 133.7 130.1 139.3 146.2 145.7

Poland 98.7 102.5 111.1 113.4 117.8 126.1 109.1 114.2 113.7 112.6

Romania 117.4 127.8 153.8 172.7 191.3 180.7 174.0 175.0 176.9 165.6

Slovakia 113.1 117.1 117.1 118.7 128.5 132.7 141.1 129.5 124.6 121.8

Sweden 97.3 96.2 93.1 94.4 97.4 91.5 89.4 92.3 92.4 90.8

Switzerland 112.3 110.0 105.7 101.2 96.2 98.9 107.0 110.1 117.7 113.8

United Kingdom 95.8 99.6 97.2 97.3 98.8 86.8 80.3 80.7 81.3 85.1

United States 97.8 91.6 89.3 86.5 82.4 79.7 88.0 83.5 78.5 82.0


Croatia 110.3 114.3 115.2 116.2 117.5 125.3 128.0 127.4 127.5 128.8

Russian Federation 131.2 140.7 155.3 170.5 180.3 191.5 182.1 198.6 204.3 206.5


Argentina 62.1 60.6 59.9 58.3 57.6 58.7 56.8 57.5 55.8 59.2

Brazil 99.1 106.5 130.9 141.0 157.0 175.9 168.9 194.0 208.0 191.8

Chile 92.3 100.0 112.1 117.9 117.3 122.3 127.0 126.3 128.0 131.0China 97.8 95.8 98.5 100.8 103.4 112.5 112.4 113.6 116.3 118.6

Colombia 88.1 95.2 105.0 102.6 110.2 113.3 106.4 124.1 123.3 126.2

Ecuador 114.1 114.3 121.9 130.5 126.2 135.3 112.4 128.9 141.6 142.2

Egypt 64.5 66.4 72.3 74.1 76.4 86.6 85.8 92.4 92.2 96.8

Hong Kong SARc 94.9 89.6 86.4 83.9 79.8 75.6 80.6 77.5 74.2 76.7

India 98.3 99.3 101.3 98.8 106.4 98.6 94.1 100.8 97.2 92.0

Indonesia 123.4 112.5 114.5 142.1 149.2 162.3 163.9 183.9 183.5 181.1

Israel 87.8 85.2 86.3 86.8 88.0 98.7 97.8 102.9 102.8 98.9

Korea, Republic o 93.0 96.2 105.9 110.7 108.2 90.8 80.0 86.2 88.2 88.2

Kuwait 102.2 94.6 96.5 94.9 93.2 97.2 96.4 98.2 96.0 95.8

Malaysia 98.6 100.7 103.5 107.0 112.7 115.7 113.1 124.5 130.8 132.1

Mexico 99.6 98.0 103.4 105.9 105.9 105.6 91.0 98.9 100.8 98.4Morocco 99.0 97.2 94.7 94.7 93.5 94.3 100.0 95.7 91.7 90.4

Nigeria 108.8 112.3 128.6 135.7 133.6 145.5 139.4 151.9 148.5 164.3

Pakistan 101.0 100.0 102.8 105.5 105.5 106.3 108.1 118.8 128.0 132.2

Peru 99.9 99.5 99.2 99.3 99.6 106.3 105.5 110.0 111.1 117.7

Philippines 107.3 100.4 107.9 129.4 135.8 130.5 128.6 118.1 110.2 111.9



173Annex tables


2003 2004 2005 2006 2007 2008 2009 2010 2011 2012b

Saudi Arabia 94.1 87.3 85.0 83.7 81.7 83.5 92.1 93.1 90.0 95.2

Singapore 95.4 102.5 106.9 112.4 119.6 125.8 114.0 116.6 118.8 121.9

South Arica 107.3 116.2 118.0 112.4 109.3 100.6 106.7 119.9 117.1 111.2

Taiwan Province o China 89.5 90.9 89.1 88.8 87.7 84.2 76.8 79.8 79.6 78.7

Thailand 100.3 100.0 102.6 111.7 125.3 120.0 112.6 123.0 125.4 124.8

Turkey 111.3 116.4 124.8 120.9 128.4 126.0 114.6 117.9 106.1 113.9

Venezuela, Bolivarian Republic o 94.5 98.9 99.7 108.2 120.0 140.4 191.0 116.0 134.2 152.3


a Indices based on a “broad” measure currency basket o 46 currencies (including the euro). The real eective exchange rate, which adjusts thenominal index or relative price changes, gauges the eect on international price competitiveness o the country’s manuactures owing to currencychanges and ination dierentials. A rise in the index implies a all in competitiveness and vice versa. The relative price changes are based onindices most closely measuring the prices o domestically produced nished manuactured goods, excluding ood and energy, at the rst stage o manuacturing. The weights or currency indices are derived rom 2000 bilateral t rade patterns o the corresponding countries.

b Average or the rst ten months.c Special Administrative Region o China.




Table A.14

Indices o prices o primary commodities, 2003–2012

Year 2000=100

Non-uel commodities Combined indexManuac-

tured

exportprices

Real priceso non-uel

commo-ditiesa

CrudepetroleumbFood

Tropical beverages

Vegetable

oilseedsand oils

Agricul-

tural raw materials

Minerals

and metals Dollar SDR

2003 104 94 137 111 98 105 99 108 97 101.8

2004 119 100 155 125 137 126 112 117 108 130.6

2005 127 126 141 129 173 140 126 120 117 183.5

2006 151 134 148 147 278 183 164 123 149 221.3

2007 164 148 226 164 313 207 178 133 155 250.4

2008 234 178 298 198 332 256 213 142 180 342.2

2009 220 181 213 163 232 213 182 134 159 221.2

2010 230 213 262 226 310 251 218 136 185 280.6

2011 265 270 333 289 349 295 247 148 199 389.3

2009 I 206 164 188 146 182 188 167 126 149 155.5

II 213 175 226 150 214 203 177 129 158 212.0

III 228 186 215 164 252 223 188 134 166 245.3

IV 233 201 224 193 278 237 197 137 173 269.3

2010 I 232 198 234 210 299 245 210 134 183 273.2

II 205 201 233 209 296 231 205 132 175 277.5

III 225 220 258 216 301 246 214 135 182 267.3

IV 257 233 322 268 344 284 242 141 201 303.5

2011 I 274 278 364 315 376 312 264 144 217 365.9

II 261 283 345 303 363 300 249 151 199 407.1 III 270 274 324 290 352 298 247 150 199 393.2

IV 255 247 299 248 304 270 228 146 185 391.0

2012 I 257 232 316 246 327 276 237 145 191 425.4

II 264 208 318 229 308 271 234 143 190 386.8

III 285 211 318 205 303 277 241 .. .. 386.2

Sources: UNCTAD, Monthly Commodity Price Bulletin; United Nations, Monthly Bulletin o Statistics; and data rom the Organization o the PetroleumExporting Countries (OPEC) website, available rom http://www.opec.org.

a Combined index o non-uel commodity prices in dollars, deated by manuactured export price index.b The new OPEC reerence basket, introduced on 16 June 2005, currently has 12 crudes.



175Annex tables

Table A.15

World oil supply and demand, 2004–2013

2004 2005 2006 2007 2008 2009 2010 2011 2012a 2013b

World oil supplyc, d

(millions o barrels per day) 83.3 84.3 85.0 84.7 86.6 85.4 87.2 88.5 90.8 91.1

Developed economies 17.4 16.5 16.3 16.0 16.8 17.0 17.3 17.3 18.1 18.6

Economies in transition 11.6 12.0 12.4 12.9 12.9 13.3 13.5 13.6 13.7 13.6

Developing economies 52.5 54.0 54.4 53.6 54.9 53.1 54.3 55.5 56.9 56.7

OPECe 33.1 34.2 34.3 34.6 36.1 34.0 34.6 35.7 37.6 37.2

Non-OPEC 19.4 19.8 20.1 19.0 18.8 19.1 19.7 19.8 19.3 19.5

Processing gainsf 1.9 1.9 1.9 2.2 2.0 2.0 2.1 2.1 2.1 2.2

World total demandg 82.5 83.8 85.1 86.5 86.5 85.4 88.1 88.8 89.6 90.5

Oil prices (dollars per barrel)

OPEC basketh 36.1 50.6 61.1 69.1 94.5 61.1 77.5 107.5 109.9 102.0

Brent oil 38.3 54.4 65.4 72.7 97.6 61.9 79.6 110.9 110.0 105.0

Sources: United Nations, World Bank, International Energy Agency, U.S. Energy Inormation Administration, and OPEC.a Partly estimated.b Baseline scenario orecasts.c Including global biouels, crude oil, condensates, natural gas liquids (NGLs), oil rom non-conventional sources and other sources o supply.d Totals may not add up because o rounding.e Includes Angola and Ecuador as o January 2007 and December 2007, respectively.f Net volume gains and losses in the rening process (excluding net gain/loss in the economies in transition and China) and marine transportation

losses.g Including deliveries rom reneries/primary stocks and marine bunkers, and renery uel and non-conventional oils.h The new OPEC reerence basket, introduced on 16 June 2005, currently has 12 crudes.




Table A.16

World trade:a changes in value and volume o exports and imports, by major country group, 2004–2014


2004 2005 2006 2007 2008 2009 2010 2011b 2012c 2013c 2014c

Dollar value o exports

World 21.2 14.2 14.7 16.2 14.0 -19.9 19.7 17.6 5.0 6.9 8.1

Developed economies 18.4 9.4 12.5 15.4 11.5 -20.0 13.1 15.2 0.0 4.1 6.3

North America 13.9 11.5 10.9 11.9 10.2 -16.8 16.2 14.3 4.2 4.0 6.0

EU plus other Europe 19.4 9.0 13.6 17.2 11.2 -20.0 10.1 15.9 -1.0 5.0 6.9

Developed Asia 21.7 8.9 7.7 12.3 12.9 -23.7 32.2 10.4 -0.8 -1.6 3.2

Economies in transition 34.3 26.7 24.1 21.3 32.2 -32.6 26.7 30.9 -1.2 3.4 9.2

South-Eastern Europe 23.7 12.5 18.5 23.7 19.6 -21.1 7.8 15.4 -3.3 6.0 7.2

Commonwealth o Independent States 35.0 28.5 24.5 21.3 33.1 -33.5 28.6 32.0 -1.0 3.2 9.5

Developing economies 26.4 21.2 19.0 17.0 17.4 -18.6 28.1 20.7 11.2 9.9 10.8

Latin America and the Caribbean 22.9 20.1 18.7 12.8 15.7 -21.0 31.6 17.1 12.2 10.9 13.1

Arica 25.1 29.6 23.4 12.8 27.7 -26.5 25.9 18.0 24.5 5.5 4.0

Western Asia 31.8 30.9 18.7 15.8 29.3 -26.5 20.5 28.2 16.8 4.8 5.9East and South Asia 26.3 18.7 18.6 18.4 14.0 -15.0 29.2 20.2 9.0 11.7 11.7

Dollar value o imports

World 21.1 13.4 14.2 15.9 14.9 -20.2 18.8 18.0 4.6 6.6 8.3


North America 15.7 13.1 10.3 6.4 8.1 -22.1 19.2 13.0 3.4 2.1 6.2

EU plus other Europe 19.8 10.3 14.2 16.9 11.8 -21.6 10.5 15.5 -1.4 4.9 7.1

Developed Asia 21.3 13.0 9.1 11.6 17.4 -23.8 24.1 23.6 9.2 2.8 1.4

Economies in transition 28.4 19.9 23.9 33.9 29.3 -29.9 20.5 27.5 2.5 7.0 12.3

South-Eastern Europe 24.4 8.5 15.1 30.9 23.1 -27.8 0.0 14.5 -2.8 6.7 7.8

Commonwealth o Independent States 29.9 21.7 25.7 34.1 30.3 -30.1 23.7 29.1 3.1 7.1 12.8

Developing economies 25.9 17.5 17.2 19.3 19.5 -15.8 27.2 20.7 10.0 11.5 10.7Latin America and the Caribbean 20.4 18.5 18.0 19.2 20.7 -20.1 28.9 19.2 9.7 10.3 11.3

Arica 20.0 21.1 18.1 27.3 24.8 -11.6 10.7 17.9 17.7 12.5 12.8

Western Asia 30.9 21.0 19.7 29.1 22.6 -17.9 15.0 17.2 12.0 5.6 6.2

East and South Asia 27.3 16.0 16.5 16.6 17.7 -14.8 31.8 21.9 9.0 11.9 10.9

Volume o exports

World 10.2 8.4 9.3 7.1 3.3 -9.6 12.8 6.9 3.5 4.0 4.9


North America 7.9 6.1 6.3 7.6 4.0 -10.1 10.2 6.3 3.7 3.1 4.3

EU plus other Europe 7.5 5.8 9.6 5.7 1.6 -11.4 10.4 5.9 2.1 3.1 4.3

Developed Asia 11.5 5.3 8.6 7.6 1.3 -18.4 18.2 0.7 1.8 2.2 6.0

Economies in transition 12.9 4.1 7.5 7.4 1.6 -7.4 7.1 3.2 3.7 4.1 4.3South-Eastern Europe 7.7 9.3 9.4 6.0 2.9 -12.9 12.3 4.6 1.2 4.1 4.6




Arica 6.6 10.6 13.5 3.7 9.6 -14.4 10.2 0.2 9.2 6.6 6.2

Western Asia 14.0 9.9 7.4 5.7 4.3 -7.4 6.6 7.5 4.8 2.2 4.2




177Annex tables


2004 2005 2006 2007 2008 2009 2010 2011b 2012c 2013c 2014c

Volume o imports

World 11.4 8.5 9.4 7.9 2.0 -9.8 13.8 7.0 3.0 4.6 5.0

Developed economies 8.6 6.1 8.0 5.0 0.1 -11.9 10.5 4.6 1.8 3.2 3.9North America 10.7 6.6 5.8 2.7 -1.9 -13.6 13.0 4.8 3.0 3.3 5.3

EU plus other Europe 7.6 6.3 9.5 5.9 1.1 -11.3 9.3 4.2 0.5 2.7 4.3

Developed Asia 8.9 4.8 5.4 5.2 -0.7 -10.7 11.0 7.6 8.0 2.5 -1.0

Economies in transition 18.7 11.1 15.7 22.2 11.8 -25.4 16.4 15.6 7.2 7.6 7.8

South-Eastern Europe 12.1 5.4 7.9 11.8 5.9 -19.7 4.6 3.5 1.6 4.5 5.5




Arica 6.0 11.6 12.1 18.0 9.4 -6.3 7.9 8.7 14.8 10.3 9.0

Western Asia 21.2 15.4 13.6 19.9 8.2 -12.6 7.8 7.6 5.1 4.1 4.0


Source: UN/DESA.

a Includes goods and non-actor services.b Partly estimated.c Baseline scenario orecasts, based in part on Project LINK.




Table A.17

Balance o payments on current accounts, by country or country group, summary table, 2003–2011

Billions of dollars

2003 2004 2005 2006 2007 2008 2009 2010 2011

Developed economies -316.8 -332.2 -502.4 -579.9 -532.6 -663.3 -226.8 -192.8 -262.3

Japan 136.2 172.1 166.1 170.9 212.1 159.9 146.6 204.0 119.3

United States -519.1 -628.5 -745.8 -800.6 -710.3 -677.1 -381.9 -442.0 -465.9

Europea 87.3 146.8 106.6 82.1 22.9 -93.0 92.6 135.1 173.4

EU-15 45.4 112.5 48.0 33.2 40.9 -57.7 34.3 44.8 72.1

New EU member States -28.5 -45.7 -40.1 -60.7 -102.6 -113.9 -34.5 -39.1 -37.6

Economies in transitionb 30.1 56.4 80.1 87.4 55.8 83.8 31.3 65.9 105.5

South-Eastern Europe -5.7 -7.1 -7.4 -8.7 -15.4 -24.6 -10.7 -6.9 -9.1

Commonwealth o Independent Statesc 36.2 63.9 88.2 97.2 73.2 111.2 43.2 74.0 116.2

Developing economies 223.0 275.0 458.8 709.5 791.4 776.0 420.9 446.8 548.4

Net uel exporters 78.7 119.5 268.1 390.6 351.6 448.9 85.8 231.0 462.0

Net uel importers 144.3 155.4 190.7 318.9 439.8 327.1 335.2 215.8 86.4

Latin America and the Caribbean 10.6 23.0 37.7 51.1 15.3 -30.0 -19.9 -55.8 -71.8


Net uel importers -0.9 6.9 9.4 16.6 -7.3 -72.8 -26.0 -65.0 -90.9

Arica 1.0 12.0 37.7 85.2 69.4 62.1 -34.3 1.4 -21.8


Net uel importers -5.1 -12.5 -17.5 -21.7 -33.4 -51.5 -39.2 -38.6 -55.7

Western Asia 40.0 58.3 142.6 184.6 145.6 228.0 43.8 104.2 254.8

Net uel exportersd 51.2 74.7 165.0 212.2 184.2 273.2 56.4 150.1 338.9

Net uel importers -11.3 -16.4 -22.4 -27.7 -38.6 -45.2 -12.6 -45.8 -84.2

East and South Asia 171.4 181.6 240.8 388.7 561.1 515.8 431.3 397.0 387.2


Net uel importers 161.5 177.4 221.2 351.6 519.1 496.5 413.0 365.2 317.2World residuale -63.8 -0.8 36.5 217.0 314.6 196.4 225.5 319.9 391.6

Source: International Monetary Fund (IMF), World Economic Outlook , October 2012; and IMF, Balance o Payments Statistics.

a Europe consists o the EU-15, the new EU member States and Iceland, Norway and Switzerland.b Includes Georgia.c Excludes Georgia, which let the Commonwealth o Independent States on 18 August 2009.d Data or Iraq not available prior to 2005.e Statistical discrepancy.



179Annex tables

Table A.18

Balance o payments on current accounts, by country or country group, 2003–2011

Billions of dollars

2003 2004 2005 2006 2007 2008 2009 2010 2011

Developed economies

Trade balance -307.7 -421.8 -637.3 -781.1 -782.6 -912.8 -475.1 -586.9 -773.1

Services, net 108.0 162.2 214.6 279.4 386.4 426.8 382.1 435.9 524.1

Income, net 53.0 132.3 165.5 164.0 160.6 152.8 190.2 305.4 345.5

Current transers, net -170.1 -204.9 -245.2 -242.2 -297.0 -330.1 -323.9 -347.1 -358.7

Current-account balance -316.8 -332.2 -502.4 -579.9 -532.6 -663.3 -226.8 -192.8 -262.3

Japan

Trade balance 104.0 128.5 93.9 81.1 105.1 38.5 43.3 91.0 -20.6

Services, net -31.4 -34.3 -24.1 -18.2 -21.2 -20.8 -20.4 -16.1 -22.2

Income, net 71.2 85.7 103.9 118.7 139.8 155.3 135.9 141.5 176.0


Current-account balance 136.2 172.1 166.1 170.9 212.1 159.9 146.6 204.0 119.3

United States

Trade balance -540.4 -663.5 -780.7 -835.7 -818.9 -830.1 -505.8 -645.1 -738.4

Services, net 49.4 58.2 72.1 82.4 122.2 131.8 126.6 150.4 178.5

Income, net 43.7 65.1 68.6 44.2 101.5 147.1 119.7 183.9 227.0



Europea

Trade balance 103.9 81.9 14.3 -58.7 -93.4 -157.9 -7.6 -43.7 -46.7

Services, net 95.9 145.8 176.0 226.4 301.9 340.5 295.7 327.4 402.6

Income, net -21.4 27.5 46.8 53.2 -16.6 -84.9 -9.1 51.6 25.0


Current-account balance 87.3 146.8 106.6 82.1 22.9 -93.0 92.6 135.1 173.4

EU-15

Trade balance 102.7 79.0 2.8 -64.4 -73.9 -148.7 -39.1 -78.1 -103.0

Services, net 64.7 110.0 133.9 177.4 241.4 267.6 228.7 253.6 318.6

Income, net -31.4 30.5 37.1 57.1 40.7 9.9 25.8 66.4 62.1


Current-account balance 45.4 112.5 48.0 33.2 40.9 -57.7 34.3 44.8 72.1

New EU member States

Trade balance -29.1 -34.7 -36.3 -52.1 -79.4 -101.3 -25.9 -30.2 -27.1

Services, net 8.0 9.5 13.2 15.8 22.9 26.7 23.4 25.7 31.7

Income, net -15.4 -28.2 -25.9 -34.9 -57.6 -51.9 -43.1 -48.6 -58.5

Current transers, net 8.0 7.7 8.9 10.5 11.5 12.6 11.1 13.9 16.3


Economies in transitionb

Trade balance 43.1 71.2 106.4 128.3 109.7 163.6 93.8 152.6 220.2

Services, net -7.0 -10.5 -12.2 -11.9 -18.4 -22.1 -18.9 -27.0 -32.7

Income, net -16.4 -17.0 -28.4 -44.3 -51.0 -77.4 -61.7 -77.3 -100.8







2003 2004 2005 2006 2007 2008 2009 2010 2011

South-Eastern Europe

Trade balance -18.6 -22.6 -23.1 -25.6 -34.4 -44.6 -29.3 -24.9 -28.9

Services, net 6.2 6.7 7.3 8.0 9.8 11.7 9.7 9.6 10.9Income, net -0.6 -0.3 -1.1 -1.2 -1.9 -2.9 -2.8 -2.9 -3.2



Commonwealth o Independent Statesc

Trade balance 62.3 94.7 130.8 156.0 147.0 212.1 125.6 180.1 252.5

Services, net -13.3 -17.2 -19.5 -20.0 -28.4 -33.8 -28.9 -37.1 -44.4

Income, net -15.8 -16.8 -27.3 -43.2 -49.2 -74.4 -58.9 -74.1 -97.3




Trade balance 303.7 365.3 578.7 774.7 842.2 861.4 543.9 663.2 830.5

Services, net -59.2 -60.0 -78.7 -87.7 -98.0 -144.2 -150.1 -169.3 -201.7

Income, net -123.9 -149.1 -190.8 -164.9 -163.0 -183.2 -180.2 -270.8 -300.9



Net uel exporters

Trade balance 185.9 254.2 409.8 526.2 533.4 712.5 340.3 532.0 827.2

Services, net -63.6 -75.6 -88.6 -113.3 -149.9 -207.3 -190.4 -204.9 -233.1

Income, net -34.5 -52.4 -56.6 -34.3 -36.6 -57.8 -53.5 -84.9 -112.8

Current transers, net -8.2 -5.2 4.7 13.5 6.5 3.6 -9.5 -9.3 -16.8


Net uel importers

Trade balance 117.9 111.1 168.9 248.5 308.9 148.9 203.5 131.1 3.2Services, net 4.4 15.6 9.9 25.7 51.9 63.1 40.3 35.6 31.4

Income, net -89.4 -96.7 -134.2 -130.7 -126.4 -125.4 -126.7 -186.0 -188.1




Trade balance 43.8 59.7 83.0 101.7 72.5 44.8 55.7 49.0 72.8

Services, net -12.9 -13.6 -17.1 -18.1 -23.9 -32.2 -33.0 -49.7 -63.7

Income, net -58.2 -67.9 -81.3 -96.5 -100.6 -109.9 -100.5 -116.5 -143.7


Current-account balance 10.6 23.0 37.7 51.1 15.3 -30.0 -19.9 -55.8 -71.8

Arica

Trade balance 16.2 33.7 67.7 95.3 97.2 115.7 0.5 52.9 47.0

Services, net -8.4 -11.1 -15.3 -22.1 -33.7 -54.5 -48.2 -53.4 -66.1

Income, net -27.8 -35.5 -45.4 -38.0 -51.4 -65.2 -48.7 -65.9 -81.0


Current-account balance 1.0 12.0 37.7 85.2 69.4 62.1 -34.3 1.4 -21.8



181Annex tables


2003 2004 2005 2006 2007 2008 2009 2010 2011

Western Asiad

Trade balance 83.6 110.9 186.9 237.8 223.3 343.7 168.1 246.7 427.7

Services, net -18.2 -25.7 -27.5 -44.9 -63.1 -88.1 -80.4 -89.0 -102.2Income, net -14.1 -17.5 -7.2 6.8 12.4 4.1 -2.9 -9.0 -9.9



East Asia

Trade balance 175.6 191.2 278.6 391.4 507.5 479.7 430.9 437.8 414.1

Services, net -21.7 -16.3 -29.0 -20.6 -2.8 -2.4 -13.3 -5.4 -16.3

Income, net -16.1 -20.9 -46.2 -27.0 -12.8 -2.0 -14.6 -59.5 -46.2



South Asia

Trade balance -15.5 -30.3 -37.4 -51.4 -58.2 -122.4 -111.3 -123.3 -131.1

Services, net 1.9 6.6 10.3 18.0 25.4 33.0 24.8 28.3 46.5

Income, net -7.7 -7.2 -10.6 -10.2 -10.6 -10.2 -13.6 -19.9 -20.0


Current-account balance 13.9 2.9 3.1 5.8 16.8 -24.4 -22.7 -30.6 -7.1

World residuale

Trade balance 39.1 14.7 47.9 121.9 169.4 112.3 162.6 228.8 277.6

Services, net 41.7 91.7 123.8 179.9 269.9 260.5 213.1 239.6 289.8

Income, net -87.3 -33.7 -53.8 -45.2 -53.5 -107.8 -51.8 -42.7 -56.2


Current-account balance -63.8 -0.8 36.5 217.0 314.6 196.4 225.5 319.9 391.6

Source: International Monetary Fund (IMF), World Economic Outlook , October 2012; and IMF, Balance o Payments Statistics.

a Europe consists o EU-15, new EU member States plus Iceland, Norway and Switzerland.b Includes Georgia.c Excludes Georgia, which let the Commonwealth o Independent States on 18 August 2009.d Data or Iraq not available prior to 2005.e Statistical discrepancy.




Table A.19

Net ODA rom major sources, by type, 1990-2011

Donor group

or country

Growth rate o ODA

(2010 prices and exchange rates)

ODA as apercent-

age o GNI

Total ODA

(millions

o dollars)

Percentage distributiono ODA by type, 2011

Bilateral Multilateral

1990-2000

2000-2008 2009 2010 2011 2011 2011 Total

Total (United Nations

and Other)United

Nations Other

Total DAC countries -0.5 5.2 1.1 6.3 -2.7 0.31 133 526 69.4 30.6 4.8 25.8

Total EU -0.3 5.8 -0.2 6.1 -2.7 0.45 72 315 60.5 39.5 5.1 34.4

Austria 4.9 11.7 -31.6 9.5 -14.3 0.27 1 107 43.4 56.6 3.0 53.6

Belgium -0.1 6.4 12.0 18.9 -13.3 0.53 2 800 57.2 42.8 6.1 36.7

Denmark 4.2 -0.8 3.3 3.9 -2.4 0.86 2 981 73.9 26.1 09.4 16.7

Finland -4.6 7.0 12.7 8.2 -4.3 0.52 1 409 60.6 39.4 11.7 27.7

Francea

-2.5 3.7 19.1 6.9 -5.6 0.46 12 994 65.4 34.6 1.8 32.8Germany -0.8 6.2 -11.5 12.4 5.9 0.40 14 533 61.4 38.6 2.3 36.3

Greece … 6.2 -13.0 -13.6 -39.3 0.11 331 18.1 81.9 3.7 78.2

Ireland 13.2 14.6 -18.2 -4.1 -3.1 0.52 904 67.8 32.2 10.0 22.2

Italy -6.7 4.7 -31.2 -4.8 33.0 0.19 4 241 37.4 62.6 3.8 58.8

Luxembourg 17.1 7.2 3.4 -2.7 -5.4 0.99 413 68.7 31.3 12.6 18.7

Netherlands 1.9 2.6 -4.4 2.7 -6.4 0.75 6 324 66.3 33.7 10.6 23.1

Portugal 5.5 1.1 -14.8 31.6 -3.0 0.29 669 66.6 33.4 0.5 32.9

Spain 8.1 10.5 -0.8 -5.4 -32.7 0.29 4 264 54.6 45.4 5.4 40.1

Sweden -0.5 8.1 7.9 -7.3 10.5 1.02 5606 65.4 34.6 12.1 22.5

United Kingdom 1.5 9.3 11.8 13.8 -0.8 0.56 13 739 58.4 41.6 4.1 37.6

Australia 0.1 5.1 -0.4 12.0 5.7 0.35 4 799 85.1 14.9 4.7 10.2Canada -2.8 4.7 -9.7 14.2 -5.3 0.31 5 291 76.5 23.5 5.4 18.1

Japan 0.8 -2.2 -10.8 12.0 -10.8 0.18 10 604 59.1 40.9 4.7 36.2

New Zealand 3.1 4.7 -2.3 -6.4 10.7 0.28 429 76.1 23.9 10.7 13.2

Norway 1.9 3.6 18.7 1.2 -8.3 1.00 4 936 76.0 24.0 13.0 11.0

Switzerland 2.4 3.9 11.9 -4.3 13.2 0.46 3 086 76.5 23.5 6.3 17.2

United States -2.7 9.8 7.9 4.1 -0.9 0.20 30 745 88.2 11.8 2.6 9.2

Source: UN/DESA, based on OECD/DAC online database, available rom http://www.oecd-ilibrary.org/statistics.

a Excluding ows rom France to the Overseas Departments, namely Guadeloupe, French Guiana, Martinique and Réunion.



183Annex tables

Table A.20

Total net ODA ows rom OECD Development Assistance Committee countries, by type, 2002–2011

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Net disbursements at current prices and exchange rates (billions o dollars)

Ofcial Development Assistance 58.6 69.4 79.9 107.8 104.8 104.2 122.0 119.8 128.5 133.5

Bilateral ocial developmentassistance 41.0 50.0 54.6 82.9 77.3 73.4 86.8 83.7 91.0 92.9

o which:

Technical cooperation 15.5 18.4 18.7 20.8 22.4 15.0 17.2 17.5 19.0 0.9

Humanitarian aid 2.8 4.4 5.2 7.1 6.7 6.5 8.8 8.6 9.3 9.7

Debt orgiveness 5.4 9.8 8.0 26.2 18.9 9.7 11.1 1.9 4.2 0.1

Bilateral loans 1.1 -1.1 -2.8 -0.9 -2.4 -2.3 -1.2 2.5 3.3 ..

Contributions to multilateralinstitutionsa 17.6 19.5 25.2 24.9 27.5 30.8 35.1 36.1 37.5 40.7

Source: UN/DESA, based on OECD/DAC online database, available at http://www.oecd.org/dac/stats/idsonline.a Grants and capital subscriptions. Does not include concessional lending to multilateral agencies.




Table A.21

Commitments and net ows o nancial resources, by selected multilateral institutions, 2002–2011

Billions of dollars

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Resource commitmentsa 95.3 67.6 55.9 71.7 64.7 74.5 135.2 193.7 245.4 163.8

Financial institutions, excludingInternational Monetary Fund (IMF) 38.5 43.1 45.7 51.4 55.7 66.6 76.1 114.5 119.6 106.8

Regional development banksb 16.8 20.4 21.5 23.0 23.1 31.3 36.1 54.4 45.4 45.9

World Bank Groupc 21.4 22.2 23.7 27.7 31.9 34.7 39.4 59.4 73.4 59.9

International Bank or Reconstruction andDevelopment 10.2 10.6 10.8 13.6 14.2 12.8 13.5 32.9 44.2 26.7

International Development Association 8.0 7.6 8.4 8.7 9.5 11.9 11.2 14.0 14.6 16.3

International Financial Corporation 3.2 4.1 4.6 5.4 8.2 10.0 14.6 12.4 14.6 16.9

International Fund or Agricultural Development 0.4 0.4 0.5 0.7 0.7 0.6 0.6 0.7 0.8 1.0

International Monetary Fund 52.2 17.8 2.6 12.6 1.0 2.0 48.7 68.2 114.1 45.7

United Nations operational agenciesd 4.6 6.7 7.6 7.7 8.3 6.3 10.5 11.0 11.6 11.3

Net ows 2.0 -11.7 -20.2 -39.6 -25.9 -6.8 40.7 52.3 62.5 77.2

Financial institutions, excluding IMF -11.2 -14.8 -10.2 0.8 5.2 -11.4 21.8 20.4 25.1 36.5

Regional development banksb -3.9 -8.0 -6.6 -1.7 3.0 5.9 21.2 15.5 9.8 10.2

World Bank Groupc -7.3 -6.7 -3.7 2.5 2.2 5.5 0.7 4.9 15.4 26.3

International Bank or Reconstruction andDevelopment -12.1 -11.2 -8.9 -2.9 -5.1 -1.8 -6.2 -2.1 8.3 17.2

International Development Association 4.8 4.5 5.3 5.4 7.3 7.2 6.8 7.0 7.0 9.1

International Monetary Fund 13.2 3.1 -10.0 -40.4 -31.0 -18.0 18.9 32.0 37.4 40.7

Memorandum item (in units o 2000 purchasing power)e

Resource commitments 97.2 62.6 47.8 59.8 54.9 56.0 97.3 146.7 183.1 242.5

Net ows 2.0 -10.8 -17.3 -33.0 -21.9 -5.1 29.3 39.6 46.6 114.3

Sources: Annual reports o the relevant multilateral institutions, various issues.

a Loans, grants, technical assistance and equity participation, as appropriate; all data are on a calendar year basis.b Arican Development Bank (ADB), Asian Development Bank (ADB), Caribbean Development Bank (CDB), European Bank or Reconstruction andDevelopment (EBRD), Inter-American Development Bank (IaDB) (including Inter-American Investment Corporation (IaIC)).

c Data is or scal year.d United Nations Development Program (UNDP), United Nations Population Fund (UNFPA), United Nations Children's Fund (UNICEF) and the World

Food Programme (WFP).e Totals deated by the United Nations index o manuactured export prices (in dollars) o developed economies: 2000=100.



185Annex tables

Table A.22

Greenhouse gas emissionsa o Annex I Parties to the United Nations Framework Convention

on Climate Change, 1990–2014

Teragram CO2

equivalent

1990 2000 2009 2010 2011b 2012b 2013c 2014c

Annual growth rate1990-2014

Cumulative

changebetween 1990

and 2014

Reached

reductioncommitments

in 2012d

Australia 418 494 547 543 548 556 558 562 1.2 34.6 No

Austria 78 80 80 85 85 87 86 86 0.4 10.6 No

Belarus 139 79 88 89 89 82 75 68 -3.0 -51.4 -

Belgium 143 146 125 132 123 121 111 108 -1.2 -24.5 Yes

Bulgaria 114 63 59 61 55 47 43 39 -4.3 -65.6 Yes

Canada 589 718 690 692 691 685 677 677 0.6 14.9 No

Croatia 31 26 29 29 28 27 27 27 -0.7 -15.1 Yes

Czech Republic 196 146 135 139 135 124 117 111 -2.4 -43.5 Yes

Denmark 70 70 62 63 55 53 51 49 -1.5 -30.2 Yes

Estonia 41 17 16 21 23 20 15 14 -4.4 -66.2 YesFinland 70 69 66 75 73 63 61 59 -0.7 -15.6 Yes

France 562 569 520 528 503 490 477 467 -0.8 -16.9 Yes

Germany 1 246 1 039 912 937 915 876 848 832 -1.7 -33.2 Yes

Greece 105 127 125 118 111 102 98 97 -0.3 -7.5 No

Hungary 97 77 67 68 61 58 53 51 -2.6 -47.4 Yes

Iceland 4 4 5 5 5 5 5 5 1.3 36.4 No

Ireland 55 68 62 61 55 50 46 44 -0.9 -20.2 Yes

Italy 519 552 492 501 486 466 453 452 -0.6 -13.0 Yes

Japan 1 267 1 342 1 207 1 258 1 221 1 219 1 194 1 191 -0.2 -4.6 No

Latvia 27 10 11 12 10 12 14 15 -2.4 -43.8 Yes

Liechtenstein – – – – – – – – -0.5 -13.8 No

Lithuania 49 19 20 21 15 12 10 8 -7.3 -83.6 YesLuxembourg 13 10 12 12 13 13 14 13 0.1 2.6 No

Malta 2 3 3 3 3 3 3 3 1.6 45.2 -

Monaco – – – – – – – – -1.2 -26.9 Yes

Netherlands 212 213 199 210 212 215 210 207 -0.1 -2.2 No

New Zealand 60 69 71 72 71 70 70 70 0.6 16.7 No

Norway 50 53 51 54 48 46 45 44 -0.6 -12.5 Yes

Poland 457 385 382 401 384 398 367 337 -1.2 -25.8 Yes

Portugal 60 82 74 71 66 64 59 58 -0.2 -3.7 No

Romania 253 141 123 121 113 102 95 88 -4.3 -65.4 Yes

Russian Federation 3 349 2 040 2 112 2 202 2 347 2 499 2 668 2 873 -0.6 -14.2 Yes

Slovakia 72 49 44 46 41 40 35 32 -3.3 -54.9 Yes

Slovenia 18 19 19 20 20 20 20 21 0.5 13.7 NoSpain 283 381 366 356 331 298 265 236 -0.7 -16.4 No

Sweden 73 69 60 66 63 64 55 51 -1.5 -29.8 Yes

Switzerland 53 52 52 54 53 52 52 51 -0.1 -3.2 No





1990 2000 2009 2010 2011b 2012b 2013c 2014c

Annual growth rate1990-2014

Cumulativechange

between 1990and 2014

Reached reduction

commitmentsin 2012d

Turkey 187 297 370 402 435 449 464 484 4.0 158.7 -Ukraine 930 396 365 383 381 374 378 377 -3.7 -59.4 Yes

United Kingdom 767 674 576 594 561 541 499 475 -2.0 -38.1 Yes

United States 6 161 7 072 6 588 6 802 6 460 6 132 5 813 5 658 -0.4 -8.2 No

All Annex I Parties 18 822 17 720 16 785 17 305 16 891 16 534 16 131 16 043 -0.7 -14.7

Source: UN/DESA, based on data o the United Nations Framework Convention on Climate Change (UNFCCC) online database, available rom http://unccc.int/ghg_data/ghg_data_unccc/data_sources/items/3816.php (accessed on 8 November 2012).

Note: Based on the historical data provided by the UNFCCC or the GHG emissions o the Annex 1 Parties up to 2010, DESA/DPAD extrapolated the datato 2013. The extrapolation is based on the ollowing procedure:

• GHG/GDP intensity or each country is modelled using time-series regression techniques, to reect the historical trend o GHG/GDP. While thetrend or each individual country would usually be a complex unction o such actors as change in structure o the economy, technology change,emission mitigation measures, as well as other economic and environmental policies, the time-series modelling could be considered a reducedorm o a more complex structural modelling or the relations between economic output and GHG emissions.

•

GHG/GDP intensity or each country is extrapolated or the out-o-sample period (2011-2014), using parameters derived rom the time-seriesregression model.

• In some cases, the extrapolated GHG/GDP intensity or individual countries was adjusted to take account o announced emission control measurestaken by Governments.

• The projected GHG emissions were arrived at using GDP estimates in accordance with the World Economic Situation and Prospects 2013 baselineorecast and the extrapolated GHG/GDP intensity.

a Without land use, land-use change and orestry.b Estimated.c Baseline scenario orecasts.d Based on UN/DESA estimates o emission levels or 2012. There was no established commitments or Belarus, Malta and Turkey.

world economic situation and prospects

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